- Japan CPI +3.6% y/y vs. forecast +3.5%, highest since 1982
- Most price increases due to cost inflation, unsustainable
- BOJ sees consumer inflation fall below 2% next fiscal year
TOKYO, Nov 18 (Reuters) – Core consumer inflation in Japan accelerated to a 40-year high in October on the back of currency weakness and pressures on global markets. imported costs that the central bank ignores while sticking to an extremely low interest rate policy.
The national core consumer price index (CPI) rose 3.6% from a year earlier, beating the 3.5% rise expected by economists and the 3.0% gain seen in September.
It was the biggest jump since February 1982, when a crisis in the Middle East resulting from the Iran-Iraq war disrupted crude oil supplies and triggered a spike in energy prices.
The rise in the index, which excludes volatile fresh food prices but includes petroleum products, confirmed that inflation remained above the Bank of Japan’s (BOJ) 2% target for a seventh consecutive month.
But economists don’t expect the BOJ to join a global trend of higher interest rates, as it sees this year’s acceleration in inflation as an episode of cost push that will fade. as import costs stop pushing.
Foreign supply constraints have pushed up prices for imported food, industrial raw materials and manufacturing parts, as has the falling yen, which in dollar terms is down more than 20% this year.
“I haven’t changed my mind that the rise will start to slow soon,” said Takeshi Minami, chief economist at the Norinchukin Research Institute, noting the drop in global grain prices. “I expect inflation to peak by the end of the year and price inflation to start to ease in the new year.”
BOJ Governor Haruhiko Kuroda on Thursday reiterated his commitment to maintaining monetary stimulus to achieve wage growth and sustainable, stable inflation. The central bank is keeping long-term interest rates around zero and short-term rates at minus 0.1%.
The economy remains fragile as it recovers from the COVID-19 downturn. In addition, Japan’s inflation rate remains moderate by the standards of other developed countries.
Kuroda argued that global commodity costs are half the magnitude of price increases in Japan.
Data for October showed increases in commodity prices and a weak yen led to a 15.2% rise in energy costs, while non-perishables food rose 5.9%, the fastest rise since March 1981.
Among food products, 88% were more expensive than a year earlier, led by alcoholic beverages, such as beer and sake.
Prices for household durable goods rose 11.8%, their strongest rise since March 1975, driven by transport, commodity and energy costs and a weak currency.
The data suggests that Japanese companies may shake off their deflationary mindset as they apply price increases to a wider range of products. Of the 522 items making up the core consumer price index, 406 were more expensive in October than a year earlier. In September, 385 were.
The BOJ forecast that average prices for the fiscal year to March 2023 will be 3% higher than in 2021-22, but the rise for 2023-24 will be only half that as commodities and other cost push factors will have diminished.
In a sign that contractors are grappling with wholesale price pressures, the business goods price index jumped 9.1% on the year to October.
Reporting by Tetsushi Kajimoto; Additional reporting by Chang-Ran Kim; Editing by Sam Holmes and Bradley Perrett
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