Japan’s annual core consumer inflation ticked up in November and a key price gauge hit a more than three-year high, suggesting that firms are gradually passing on rising labour and tax hike costs to shoppers. All the same, inflation remained distant from the Bank of Japan’s 2 per cent target, underscoring the challenge the central bank faces in propping up prices as the economy shows sign of slowing.
The core consumer price index (CPI), which excludes volatile fresh food prices, rose 0.5 per cent in November from a year earlier, government data showed on Friday, matching a median market forecast and accelerating from a 0.4 per cent gain in October. The so-called core-core inflation index, which strips away the effect of both volatile fresh food and energy costs, was up 0.8 per cent in November, marking the fastest year-on-year increase since April 2016.
The rise in the core-core CPI, closely watched by the BoJ as a key measurement on the broad inflation trend, reflects price hikes for a wide range of goods and services, a government official told reporters on the data. Shoppers paid 5 per cent more for sushi in November than a year ago and 8 per cent more for a cup of ice cream. They spent 36 per cent more for electric vacuum machines as high-end models sold well, the official said.
Analysts, however, doubt whether the rise will have legs given signs of slowdown in the economy. “The rise in inflation excluding fresh food and energy …is a positive sign for the Bank of Japan and will allow them to claim with more confidence that momentum towards their 2 per cent price target is maintained,” said Tom Learmouth, Japan economist at Capital Economics.
“However, we expect underlying inflation to moderate to around 0.4 per cent as the unemployment rate climbs and capacity utilisation falls.” The BoJ kept monetary policy steady on Thursday on the view that solid domestic demand will make up for weak exports, which have been hit by the US-China trade war. But many analysts expect Japan’s economy, which expanded an annualised 1.8 per cent in the third quarter, to have contracted in the current quarter as a sales tax hike in October cools consumption.
Households cut spending for the first time in a year in October, even as wages crept up reflecting a tight job market. Factory output suffered its largest fall in two years in October and big manufacturers’ business sentiment sank to a near seven-year low in the fourth quarter, underlining the fragile state of Japan’s recovery.
Left with few ammunition to fire up inflation, the BoJ is seen keeping policy steady for the time being unless a severe shock hits the economy — including at its rate review next month. BoJ Governor Haruhiko Kuroda has said the bank will take into account the expected boost to growth from the government’s spending package when it conducts a quarterly review of its growth and price projections at the January rate review.