Japan’s core inflation hits 15-month high on energy costs
- Core inflation for June, at + 0.2%, matches expectations
- Increase largely due to rising energy costs
- Inflationary pressure much lower than in other major economies
- New COVID brakes likely to weigh on consumption, inflation
TOKYO, July 20 (Reuters) – Japan’s consumer staples prices rose 0.2% in June from a year earlier, marking the fastest annual pace in more than a year, according to data released Tuesday, a sign that the impact of global commodity inflation has gradually widened.
But the increase, largely due to rising energy costs, was much smaller than that of other major economies due to weak consumption, raising expectations that the Bank of Japan will be forced to maintain its massive stimulus measures for the time being.
The rise in the Consumer Price Index (CPI), which includes petroleum products but excludes volatile fresh food prices, matched a median market forecast for a gain of 0.2% and followed an increase 0.1% in May.
The increase, which was the fastest since March 2020, was mainly due to a 4.6% increase in energy costs with gasoline prices up 17.9%, a sign that households were facing an increase in the cost of living.
“It’s cost push-type inflation that is unlikely to have any legs, with articles supporting prices primarily related to energy,” said Yasunari Ueno, chief markets economist at Mizuho Securities.
Some countries, including the United States and Britain, have seen inflation rise faster than expected as demand recovers from the coronavirus pandemic, sparking debate over how quickly they should wean their economies off stimulus measures.
With inflation well below its 2% target, the BOJ should be far behind its counterparts in reducing its massive monetary support to support a fragile recovery.
While global commodity inflation pushed up wholesale prices in Japan, consumer prices barely rose as companies remained cautious about passing higher costs on to households.
Based on the CPI data for July due on August 20, the government will use a new base year which will lead to adjustments in the weighting of certain elements making up the index.
Many analysts are forecasting the change to push the core CPI back into negative territory due to an expected increase in the weighting of mobile charges, which have recently declined.
Mizuho Securities’ Ueno expects the base year change to lower the core CPI by about 0.2%.
A resurgence in COVID-19 infections has forced the government to impose a new state of emergency in the host city of the Tokyo Olympics from Monday to August 22, dashing policy makers’ hopes of a solid rebound in growth economical in July-September.
In new quarterly projections released on Friday, the BOJ cut its forecast for economic growth for the fiscal year ending March 2022 to 3.8% from 4.0%, in part due to the new restrictions.
He revised this year’s core CPI forecast upward to 0.6% from 0.1%, largely reflecting higher energy prices.
Reporting by Leika Kihara; Editing by Sam Holmes
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