Japan’s inflation hits near 8-year high, still well above BOJ target According to Reuters

By Leika Kihara and Takahiko Wada

TOKYO (Reuters) – Japan’s core consumer inflation accelerated to 2.8% in August, hitting its fastest annual pace in nearly eight years and beating the central bank’s 2% target for the month. for the fifth consecutive year as price pressures from raw materials and a weakening yen increased.

The strength of August inflation raises growing suspicion among economists that price pressures will last longer than expected by the Bank of Japan (BOJ), although many still expect no immediate changes to its ultra-easy policy.

On Thursday, the BOJ will wrap up its two-day policy meeting, during which analysts are expected to examine the fragility of the economic recovery in deciding whether to keep both short-term rates and interest rates on hold. near zero in the long run.

“The weak yen is pulling inflation into Japan. Core consumer inflation could hit 3 percent in October,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

“Inflation could stay above 2% for a year or so. That could prompt the BOJ to change its outlook on prices,” he said.

The rise in the core consumer price index (CPI), which excludes volatile fresh foods but includes fuel costs, was slightly larger than the median market forecast of a 2.7 percent increase. % and followed a 2.4% increase in July.

This increase, the fastest since October 2014, was largely due to higher utility bills, rising food and grocery prices, and the fading effect on data from cuts in mobile phone rates. action was taken last year.

Analysts expect core consumer inflation to exceed 3% in October, as more retailers plan to raise prices and the underlying impact of more mobile fee cuts in 2021 will not be excluded from the calculation.

An index that excludes both fresh food and energy costs, which the BOJ considers a key measure of the underlying strength of inflation, was 1.6% higher for the month 8 from a year earlier, marking the fastest annual growth rate since 2015.

The BOJ’s dovish policy stance contrasts with expectations that the US Federal Reserve will deliver a rate hike on Wednesday that will widen the gap with Japanese yields and could trigger a new yen sale.

Inflation data highlights the dilemma the BOJ faces as it tries to shore up a weak economy by keeping interest rates extremely low, which has spurred an unexpected slide in the yen, pushing up costs. import up.

While commodity prices in August were 5.7 percent higher than a year earlier, service prices rose just 0.2 percent, CPI data showed. That leaves policymakers hoping that the labor-intensive service sector will see stronger price increases and offset costs by raising wages.

The pain of households adds to the pressure on Prime Minister Fumio Kishida, whose approval rating has dropped, to roll out a new stimulus package to spur growth.

The world’s third-largest economy grew 3.5% year-over-year in the second quarter. But its recovery has been hampered by a resurgence of COVID-19 infections, supply constraints and rising raw material costs.

With inflation remaining modest compared with price gains in other major economies, the BOJ has pledged to keep interest rates extremely low, remaining exceptional in a wave of global monetary tightening.

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