Consumer inflation in Japan’s capital is rising at the fastest pace in 40 years

Consumer inflation in Japan’s capital is rising at the fastest pace in 40 years

Consumer inflation in Japan’s capital is rising at the fastest pace in 40 years

  • Tokyo November core CPI up 3.6% vs. f’cast +3.5%
  • Tokyo CPI remains above the BOJ’s 2% target for the sixth consecutive month
  • Data underline rising inflationary pressures

TOKYO, Nov 25 (Reuters) – Core consumer prices in Japan’s capital, a leading indicator of nationwide trends, rose at their fastest annual pace in 40 years in November and exceeded the central bank’s 2% target for a sixth straight month, signaling increasing inflation pressure.

The increase, driven mainly by food and fuel bills but spreading to a wider range of goods, cast doubt on the Bank of Japan’s (BOJ) view that recent cost-push inflation will prove transitory, some analysts said.

Tokyo’s core consumer price index (CPI), which excludes fresh food but includes fuel, was 3.6% higher in November than a year earlier, authorities showed on Friday. The rise exceeded a median market forecast of 3.5% and the increase of 3.4% in October

The last time Tokyo inflation was faster was April 1982, when the core CPI was 4.2% higher than the previous year.

While the increase was mainly driven by electricity bills and food prices, companies also charged more for durable goods as the weak yen pushed up import costs, the data showed.

“Price increases are widening and suggest the weak yen could keep inflation up well into next year,” said Mari Iwashita, chief market economist at Daiwa Securities.

“Core consumer inflation could remain around the BOJ’s 2% target for much of next year, which will make it difficult for the bank to continue to argue that price increases are temporary.”

Tokyo’s core CPI, which excludes fuel as well as fresh food, was 2.5% higher in November than a year earlier, picking up from October’s 2.2% annual increase.

BOY AN OUTLIER

The BOJ has kept interest rates ultra-low on the assumption that inflation will ease back below target next year as the boost from fuel price gains wears off. The central bank has therefore remained an outlier from a wave of monetary tightening around the world aimed at fighting rising inflation.

Contrary to the experience of some Western economies, where wages have risen with inflation, growth in wages and service prices remains subdued in Japan.

Of the components that make up the Tokyo CPI data, service prices in November were up just 0.7% from a year earlier, following an annual increase of 0.8% in October. That compared with a 7.7% increase in durable goods prices for November, which followed October’s annual increase of 7.0%.

Separate data released by the BOJ on Friday showed that the price index for business services, which measures the prices that firms charge each other for services, had been 1.8% higher in October than a year earlier. That was slower than an annual increase of 2.1% in September.

BOJ Governor Haruhiko Kuroda has repeatedly said that for inflation to reach his 2% inflation target in a sustainable manner, wages must rise enough to offset the rise in commodity prices.

Slow wage growth has been among the factors delaying Japan’s recovery from the coronavirus pandemic. The world’s third-largest economy unexpectedly shrank by an annualized 1.2% in the third quarter, partly due to soft consumption.

Tokyo CPI data raises the chance of further increases in nationwide core consumer prices, which in October were 3.6% higher than a year earlier, also marking a 40-year high. The nationwide data for November is scheduled to be released on December 23.

Reporting by Takahiko Wada and Leika Kihara; Editing by Sam Holmes and Bradley Perrett

Our standards: Thomson Reuters Trust Principles.

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