Consumer inflation in Japan’s capital rises at fastest pace in 40 years

  • Tokyo November core CPI rose 3.6% vs f’cast +3.5%
  • Tokyo CPI is above the BOJ’s 2% target for the 6th consecutive month
  • The data underscores broad inflationary pressures

TOKYO, Nov 25 (Reuters) – Core consumer prices in the Japanese capital, a leading indicator of nationwide trends, rose at their fastest annual pace in 40 years in November and beat the central bank’s 2% target for a sixth straight month, pushing inflation widening. stress

The increase, driven largely by food and fuel bills but spread to a wider range of goods, casts doubt on the Bank of Japan’s (BOJ) view that recent spending-push inflation will prove temporary, some analysts said.

Tokyo’s core consumer price index (CPI), which excludes fresh food and includes fuel, was 3.6% higher in November than a year ago, government data showed on Friday. The increase beat the median market estimate of 3.5% and beat the 3.4% increase seen in October.

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The last time Tokyo inflation was faster was in April 1982, when core CPI was 4.2% higher than a year earlier.

While the increase was largely driven by electricity bills and food prices, the data showed that companies were also charging more for durable goods as a weaker yen pushed up the cost of imports.

“Inflation is widening and the weaker yen suggests that inflation will rise sharply next year,” said Mari Iwashita, chief market economist at Daiwa Securities.

“Core consumer inflation is likely to remain around the BOJ’s 2% target for most of next year, making it difficult for the bank to argue that price increases are temporary.”

Tokyo’s core-core CPI index, which excludes fuel and fresh food, was 2.5% higher in November than a year earlier, down from the 2.2% annual gain seen in October.

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Boaz is an outlier

The BOJ kept interest rates ultra-low on the view that inflation will fall below its target next year as the boost from fuel price gains dissipates. Hence the central bank has stepped out of the global inflationary tightening meant to combat rising inflation.

Contrary to the experience of some Western economies, where wages have risen with inflation, growth in wages and service prices in Japan has been muted.

Among the components that make up the Tokyo CPI data, services prices rose just 0.7% from a year earlier in November, after a 0.8% annual increase seen in October. This followed a 7.0% annual gain in October, compared with a 7.7% spike in durable goods prices in November.

Separate data released by the BOJ on Friday showed the corporate service price index, which measures the prices firms charge each other for services, was 1.8% higher in October than a year ago. This was slower than the 2.1% annual gain seen in September.

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BOJ Governor Haruhiko Kuroda has repeatedly said that for inflation to sustainably reach its 2% inflation target, wages must rise enough to offset rising commodity prices.

Slow wage growth is one of the factors delaying Japan’s recovery from the coronavirus pandemic. The world’s third-largest economy unexpectedly shrank by an annualized 1.2% in the third quarter, partly due to softer consumption.

The Tokyo CPI data raises the prospect of further increases in core consumer prices across the country, which were 3.6% higher than a year ago in October, also marking a 40-year high. The nationwide data for November will be released on December 23.

Reporting by Takahiko Wada and Laika Kihara; Editing by Sam Holmes and Bradley Perrett

Our criteria: Thomson Reuters Trust Principles.

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