Japan's August CGPI Grows Slower, Current Account Surplus Narrows In July

Sep 12, 2007 - Japan's domestic corporate goods price index - CGPI rose 1.9% in August from last year, driven by higher raw material prices, the Bank of Japan said Wednesday. This marked the forty-second consecutive monthly increase. Nonetheless, these increases failed to push Japan's core consumer prices, which remained sluggish in the past seven months forcing the BoJ to delay the much awaited interest rate hike.

In the prior month, CGPI climbed a revised 2.2%, the report said. On a monthly basis, corporate good prices remained unchanged in August, following seven consecutive months of increases.

Economist expected the CGPI to gain 1.8% from last year and rise 0.1% from the prior month.

Prices of manufacturing products rose 1.9% in July from the previous year, while that of minerals and scraps& wastes climbed 4.0% and 28.4% respectively. Electrical power, gas & water prices rose 0.9% in contrast to prices of agriculture, forestry & fishery products, which eased 0.9% from a year ago.

Price increase was broad based across almost all manufacturing industry products. Iron & steel prices increased the most, rising 11.6%, while prices for electrical machinery & equipments and precision instruments slipped 2.0% and 0.3% respectively.

The report said that the export price index rose 1.2% in August, down from a revised 5.3% increase in the prior month. The import price index gained 4.2% compared to a revised 8.9% rise in July.

Prices of commodities categorized on the basis of demand and use rose 2.3% in August, down from a revised 3.4% in the previous month. Raw material prices climbed 4.2%, slower than the revised 8.3% jump in July. Prices of intermediate goods rose 3.2%, while finished goods prices inched up 0.3% from a year earlier.

BoJ in its semiannual outlook report released in April, reiterated that the CGPI is likely to continue its upward trend despite fluctuations in crude oil price and exchange rates.

However, the continued growth in the CGPI at slower rate compared to prior month, will unlikely give enough room for the central bank's policy board for a rate hike when it meets on September 18 -19 for its next policy meeting. The recent weak economic data, prominently the revised second quarter GDP number, which showed that the Japanese economy shrank 1.2% from year ago, almost rule out the chances of a rate revision this time, analysts say.

There are also concerns about how the global financial market volatility that was sparked off by the U.S. subprime loan crisis will impact the Japanese external demand and the economy at large in the near term.

Current Account Surplus Narrows

The Ministry of Finance, in a preliminary report said Wednesday, that Japan's current account surplus grew 4.5% to 1855.9 billion yen in July from a year earlier. Analysts were looking for a current account surplus of 1810.0 billion yen for July. In the prior month, the current account surplus widened 48.4% from a year ago.

The growth was due to a solid income account, which showed a 24.6% increase in surplus, partially offsetting the fall in trade surplus.

The overall trade surplus fell 29.6% to 458.8 billion yen in July, impacted by a 17.6% decrease in trade surplus in goods to 784.3 billion yen. Services account showed a net deficit of 325.5 billion yen.

Exports rose 11.1% to 6,688.8 billion yen, while imports advanced 16.6% to 5,904.5 billion yen. This compared to a 16.1% increase in exports and 9.2% growth in imports in the prior month.

Income account showed a surplus of 1517.0 billion yen in July, compared to 456.8 billion yen in June. Income from overseas debt rose to 1173.1 billion yen, while equity income amounted to 202.7 billion yen.

Current transfers showed a net deficit of 119.9 billion yen, compared to the prior month's deficit of 83.8 billion yen.

On a seasonally adjusted basis, current account surplus fell 14.3% to 1753.9 billion yen in July from the prior month, when it slipped 8.1%. The result fell short of the expected target of 1900.0 billion yen for July. Trade surplus of goods and services fell 13.7% to 606.3 billion yen, while income surplus narrowed to 1270.7 billion yen from a surplus of 1439.5 billion yen in the prior month.