Japan’s inflation rate reached its highest level in 40 years as the Bank of Japan stuck to an easy policy

  • Japan CPI +3.6% YoY/Y vs expectation +3.5%, highest level since 1982
  • Large price increases due to cost-push inflation, is not sustainable
  • The Bank of Japan expects consumer inflation to fall below 2% in the next fiscal year

TOKYO (Reuters) – Core consumer price inflation in Japan accelerated to a 40-year high in October, driven by currency weakness and imported cost pressures that the central bank shrugged off as it stuck to ultra-low interest rates.

The core consumer price index (CPI) nationwide rose 3.6% from a year earlier, outperforming the 3.5% rise economists had expected and the 3.0% rise seen in September.

Reuters graphics

It was the biggest jump since February 1982, when the Middle East crisis stemming from the Iran-Iraq War disrupted crude oil supplies and sent energy prices soaring.

A 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 the seventh consecutive month.

But economists do not expect the Bank of Japan to join the global trend of raising interest rates, because it sees the acceleration of inflation this year as a cost-push cycle that will dissolve as import costs cease to be paid.

Foreign supply constraints have pushed up prices for imported foodstuffs, industrial goods and manufacturing parts, as well as a decline in the yen, which has fallen in dollar terms by more than 20% this year.

“I haven’t changed my view that the rise will start to slow soon,” said Takeshi Minami, chief economist at Norinchukin Research Institute, referring to the decline in global grain prices. I expect inflation to peak by the end of the year and price hikes to start to moderate in the new year.

Bank of Japan Governor Haruhiko Kuroda on Thursday reiterated his pledge to maintain monetary stimulus to achieve sustainable and stable wage growth and inflation. The central bank maintains long-term interest rates around zero and short-term rates at 0.1%.

The economy remains fragile as it recovers from the COVID-19 downturn. Also, Japan’s inflation rate remains moderate by the standards of other developed countries.

Beer, Saki Ap

Kuroda argued that global commodity costs accounted for half the size of Japan’s price rise.

October data showed rises in raw material prices and a weaker yen led to a 15.2% increase in energy costs, while excluding food prices rose 5.9%, the fastest rise since March 1981.

Among food items, they were 88% more expensive than the previous year, led by alcoholic beverages, such as beer and sake.

Household durable goods prices rose 11.8%, the largest rise since March 1975, driven by transportation costs, raw materials, energy, and a weaker currency.

The data suggests that Japanese companies may be getting out of deflationary mentality as they apply price hikes to a wide range of products. Of the 522 items that make up the core CPI, 406 items were more expensive in October than in the previous year. In September, it was 385.

The Bank of Japan has projected average prices for the fiscal year ending March 2023 to be 3% higher than in 2021-22, but the rise in 2023-24 will be only half that high, because commodities and other cost drivers will recede.

In a sign that subcontractors are suffering from wholesale price pressure, the corporate goods price index jumped 9.1% in the year through October.

Reporting by Tetsushi Kajimoto. Additional reporting by Chang Ran Kim. Editing by Sam Holmes and Bradley Perrett

Our Standards: The Thomson Reuters Trust Principles.

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