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 BOJ’s 2% target for 6th 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, surpassing the central bank’s 2% target for a sixth straight month, signaling rising inflation. pressure.

The rise, driven mainly by food and fuel bills but spreading to a wider range of goods, casts doubt on the Bank of Japan’s (BOJ) view that recent price-push inflation will prove temporary, 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, government data showed on Friday. The increase exceeded an average market forecast of 3.5% and the 3.4% increase in October

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

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 gains are widening and suggest the weak yen could keep inflation high 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 most of next year, which would make it difficult for the bank to continue to argue that price increases are temporary.”

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

BOY AN OUTLIER

The BOJ has kept interest rates ultra-low on the view that inflation will fall back below its target next year as the boost from fuel price increases wears off. The central bank has therefore remained an outlier from a wave of monetary policy tightening around the world aimed at combating 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 rose just 0.7% in November from a year earlier, following an annual increase of 0.8% seen 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 prices companies charge each other for services, had been 1.8% higher in October than a year earlier. That was slower than a 2.1% annual increase in September.

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

Slow wage growth has been among the factors that have delayed Japan’s recovery from the coronavirus pandemic. The world’s third-largest economy unexpectedly shrank 1.2% year-on-year 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 for release 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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