Japan's consumer inflation hits fresh 40-year high |  CNN Business

Japan’s consumer inflation hits fresh 40-year high | CNN Business


Japan’s core consumer inflation hit a fresh four-decade high as companies continued to pass on rising costs to households, data showed, a sign that price increases are spreading and could keep the central bank under pressure to scale back massive stimulus.

Bank of Japan (BOJ) policymakers discussed the potential market impact of a future exit from ultra-low interest rates months before Tuesday’s surprise upgrade of its yield control policy, minutes of their October meeting showed on Friday.

While many retailers are planning further hikes in food products next year, the outlook for inflation and the timing of any further BOJ policy adjustments are confounded by the risk of a global recession and uncertainty over the pace of wage increases, analysts say.

“The hurdle for policy normalization is not low. The global economy may worsen in the first half of next year, so it will be difficult for the BOJ to take steps that can be interpreted as tightening monetary policy,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

Japan’s core consumer price index (CPI), which excludes volatile fresh food but includes energy costs, rose 3.7% in November from a year earlier, data showed on Friday, matching market forecasts and strengthening from October’s 3.6% gain .

It was the largest increase since the 4.0% jump recorded in December 1981, when inflation was still high due to the impact of the 1979 oil shock and a booming economy.

In addition to utility bills, prices for a wide range of goods from fried chicken to smartphones to air conditioners rose in a sign of rising inflationary pressures, the data showed.

Many analysts expect core consumer inflation to slow near the BOJ’s 2% target next year as the underlying effect of past fuel price spikes fades and the effect of government subsidies to curb electricity prices kicks in from February.

But the index, which strips out these one-off factors, may remain elevated, keeping pressure on the BOJ to remain wary of the possibility of demand-led inflation.

The so-called core-core index, which excludes fresh food and energy prices, rose 2.8% in November from a year earlier, accelerating from a 2.5% increase in October.

The rise in the core index, closely watched by the BOJ as a measure of demand-driven inflation, shows how inflationary pressures are building in once deflation-prone Japan and could persist into next year.

Companies already expect to raise prices on 7,152 food products in the first four months of 2023, more than double from the same period this year, research firm Teikoku Data Bank said in a report.

“Next year, we are likely to see a surge in prices that could be more intense than this year,” Teikoku Data Bank said, as companies face rising labor and distribution costs.

The BOJ stunned markets on Tuesday by tightening its grip on yields and allowing long-term interest rates to rise more, a move market players see as a prelude to further tapering of its massive stimulus program.

BOJ Governor Haruhiko Kuroda, whose term ends in April, said the bank had no intention of ending stimulus as inflation was expected to slow below 2% next year.

But the October minutes showed many of his board colleagues shifting their focus to the risk of inflation overshooting and the prospect of a withdrawal of stimulus.

“Given structural changes such as the shift away from globalization, past experiences from Japan may not necessarily apply. We cannot rule out the possibility of a big overshoot in inflation,” one member said in the October minutes.

The consumer price index data is likely to be one of the key factors the BOJ will examine when it produces new quarterly inflation forecasts at the two-day policy meeting ending January 18.

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