Japan New CPI Formula: Household Electronics Weighting Raised
TOKYO (MNI) – Japan’s government on Friday said it is giving a
significantly larger weighting to consumer electronics in the basket of
goods and services used for calculating CPI under the new 2010 base
year, a move that will depress consumer prices.
The weighting allocated to televisions will be 97 against the
basket total of 10,000 in the 2010 base year, up from 37 under the
formula fixed to 2005 price levels.
Air conditioners will also get a bigger share of 36 out of 10,000,
up from 20, while the weighting for refrigerators will rise to 21 from
The reallocation of the weighting among various goods and services
reflect a surge in demand for those household appliances on the back of
the government’s reward program for buying TVs, air conditioners/heaters
and refrigerators that require less power to operate. The program lasted
from May 15, 2009 to March 31, 2011.
Consumers often buy goods and services whose prices are lower than
others of similar quality, which raises the weighting of these items in
the CPI basket at the time of the review. This adds downward pressure to
the overall consumer price index,
In order to correct an upward bias that the fixed index tends to
show as time passes from the base year, the government updates the CPI
base year every five years, this time from 2005 to 2010.
As the public continues to switch to cell phones from land lines,
the weighting of mobile phones and carrier charges will be raised to 269
against the 10,000 total from 212, a limited increase compared to the
spike in the previous shuffling five years ago.
Meanwhile, the weighting of high school tuition will fall sharply
to 23 against 10,000 under the 2010 base year, down from 79.
As part of measures to support consumer spending, the government
began providing subsidies for both public and private high school
education in April 2010. The dampening effect on CPI lasted for 12
months through March this year, slashing core CPI by about 0.4
percentage point y/y every month until March.
Also, the weighting of tobacco will be lowered to 53 from 63.
Market participants are closely watching the revamp of the data as
the revision five years ago caused market gyrations. The revision at
that time pushed down the core CPI annual rate by 0.5 percentage point,
much larger than the market consensus for a 0.2-point drop.
However, the government plans only a limited reshuffle of the CPI
basket this time, which means they will be no major surprise when it
releases price data under the new formula next month.
Five years ago, mobile phone charges pushed down the y/y change in
the official core CPI by 0.13 percentage point, and flat-panel TVs, a
newly adopted item at the time, lowered it by 0.07 percentage point.
Then, the weighting of mobile phone charges was raised to 208
against the basket total of 10,000 in the 2005 base year, up sharply
from 74 in the 2000 base year.
Naoko Ogata, senior economist at the Japan Research Institute, is
forecasting that the revision this time will depress the y/y change in
the core CPI by around 0.6 percentage point.
The nationwide core CPI, which excludes fresh food but includes
energy, rose 0.6% in May from a year earlier, the same rate as in April,
when it posted the first y/y rise since December 2008.
The Bank of Japan has said the year-on-year rate of change in
consumer prices is “expected to remain slightly positive,” but has also
warned that the rebasing is “likely to cause the year-on-year rate of
change in the CPI to be revised downward.”
The ministry will announce monthly CPI data for a period between
January 2010 and June 2011 under the new formula at 1700 JST (0800 GMT)
on Aug. 12. It will release the July national and August central Tokyo
CPI under the new formula at 0830 JST on Aug. 26 (2330 GMT Aug. 25).
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