Japan’s core inflation rises to 15-month high due to energy costs Reuters

By Leika Kihara

Tokyo (Reuters)-Data released on Tuesday showed that Japan’s core consumer price index in June rose 0.2% from the same period last year, the fastest annual growth rate in more than a year, indicating that the impact of global commodity inflation is gradually expand.

However, due to weak consumption, the increase mainly driven by rising energy costs is much smaller than that of other major economies, which strengthens the expectation that the Bank of Japan will be forced to maintain large-scale stimulus measures temporarily.

The rise in the core consumer price index (CPI), which includes petroleum products but excluding fluctuating fresh food prices, is in line with market expectations for a 0.2% increase, which was 0.1% in May.

This is the fastest increase since March 2020, mainly due to a 4.6% increase in energy costs and a 17.9% increase in gasoline prices, indicating that families are facing higher living costs.

Yasunari Ueno, chief market economist at Mizuho Securities, said: “This is cost-driven inflation and may not continue. The projects that support prices are mainly energy-related.”

As demand recovers from the coronavirus pandemic, inflation rates in some countries, including the United States and the United Kingdom, are rising faster than expected, sparking debate about how quickly they should get the economy out of stimulus measures.

With inflation well below its 2% target, the Bank of Japan may lag far behind its peers in retracting its massive monetary support to support a fragile recovery.

Although global commodity inflation has pushed up Japan’s wholesale prices, consumer prices have hardly increased because companies are still cautious about passing on higher costs to households.

Judging from the July CPI data that expires on August 20, the government will use a new base year, which will lead to adjustments in the weights of certain items that make up the index.

Many analysts expect this change to push the core CPI back to the negative region, because the weight of mobile phone costs is expected to increase, and the weight of mobile phone costs has been declining recently.

Ueno of Mizuho Securities expects that changes in the base year will push down the core CPI by approximately 0.2 percentage points.

The resurgence of COVID-19 infection forced the government to impose new emergency restrictions on the Olympic host city Tokyo from Monday to August 22, which dashed policy makers’ hopes of a strong rebound in economic growth from July to September.

In the new quarterly forecast released on Friday, the Bank of Japan lowered its economic growth forecast for the fiscal year ending March 2022 from 4.0% to 3.8%, partly due to new restrictions.

It revised up this year’s core CPI forecast from 0.1% to 0.6%, mainly reflecting the impetus of rising energy prices.