Japan’s inflation last month hit its fastest clip in 40 years, an outcome that further stretches the credibility of the Bank of Japan’s (BOJ) view that continued stimulus is needed to secure stable price growth.
Consumer prices excluding fresh food climbed 3.6 percent from a year earlier, the Japanese Ministry of Internal Affairs and Communications said yesterday.
The reading outpaced a 3.5 percent forecast by analysts and marks the fastest price growth since 1982. Core inflation has now exceeded the central bank’s 2 percent price target for seven straight months, with the yen’s historic fall amplifying the trend.
Photo: Bloomberg
Following the release, BOJ Governor Haruhiko Kuroda reiterated his view that the central bank’s ultra-low interest rates remain appropriate, although he added that the latest gains were significant and inflation could accelerate further.
While economists largely agree with the BOJ that inflation would cool in Japan next year, partly as a result of government subsidies, some analysts see the central bank underestimating the underlying strength of prices.
“It’s getting harder for the BOJ to keep saying that the current cost-push inflation is temporary,” Daiwa Securities Co chief market economist Mari Iwashita said. “If the yen remains weak, more companies will try to pass on costs to consumers.”
Photo: REUTERS
The BOJ remains the outlier among major central banks. While its peers have long since given up the view that hot prices are merely transitory, and have aggressively raised borrowing costs, Kuroda has stuck resolutely with rock-bottom interest rates.
That stance has helped drive the yen to 32-year lows against the US dollar, prompting repeated government intervention in currency markets.
Kuroda has consistently said that the current inflation is unsustainable and driven by import costs and the weaker currency, as he looks to keep policy on hold during the final months of his leadership.
“I believe price growth will fall below 2 percent next fiscal year onward,” Kuroda yesterday told parliament.
The latest data show that price rises are continuing to spread beyond energy costs.
Gains in processed food costs now outweigh the impact of elevated power and fuel prices, the report showed.
Excluding fresh food and energy, price growth has reached 2.5 percent, an indication that the strength of the inflation trend is firmly beyond 2 percent.
Last month, companies raised the prices of about 6,700 food items, ranging from mayonnaise to beverages, a Teikoku Databank survey showed.
Although the trend appears to have peaked last month, the prices of another 833 food items, including dairy products, are expected to increase this month.
To ease the hit of higher prices on consumption, Japanese Prime Minister Fumio Kishida last month ordered an economic stimulus package that includes aid to reduce energy costs and cash handouts for childcare.
His Cabinet has approved an extra budget of ￥29.1 trillion (US$207.7 billion) to partly fund these measures.
Bloomberg economist Yuki Masujima said that the government “is putting no pressure on the BOJ to pivot. It prefers to keep interest rates ultra-low to finance its debt, including the new borrowing required by its latest stimulus package.”
Kuroda, whose term finishes in April next year, has singled out wage growth as the key factor needed to create an environment of lasting growth in prices and the economy.
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