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

  • Tokyo Nov core CPI up 3.6% vs f’cast +3.5%
  • Tokyo CPI remains above BOJ’s 2% target for 6th month
  • The data highlights increasing inflationary pressures

TOKYO, Nov 25 (Reuters) – Core consumer prices in Japan’s capital, an early indicator of nationwide trends, rose at their fastest annual pace in 40 years in November and exceeded the central bank’s 2% target for the sixth month in a row, signaling rising inflation. pressure.

The increase, led by food and fuel bills but spread across a wider range of goods, casts doubt on the Bank of Japan’s (BOJ) view that recent inflation will prove but passing, say some observers.

Tokyo’s core consumer prices (CPI), which excludes fresh food but include fuel, were 3.6% higher in November than a year earlier, government data showed on Friday. The increase exceeded the median market forecast of 3.5% and the 3.4% increase seen in October

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

While the rise was driven by electricity bills and food prices, companies paid more for durable goods as the weak yen pushed up import prices, the data showed.

“Inflation is rising and suggests that a weak yen may keep inflation in check next year,” said Mari Iwashita, chief economist at Daiwa Securities.

“Inflation in core consumers is likely to remain at the BOJ’s 2% target for most of the coming year, which may make it difficult for banks to confirm that the rate hike is temporary. “

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

BOJ AN OUTLIER

The BOJ kept interest rates at record lows on the assumption that inflation will slow next year as rising oil prices ease. Therefore, the Central Bank has remained indifferent to the wave of financial stress around the world aimed at combating inflation.

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

Among the components that make up the Tokyo CPI data, service prices in November rose just 0.7% from a year earlier, following a 0.8% annual increase seen in October. That compares with a 7.7% rise in durable goods prices for November, which followed a 7.0% annual gain in October.

Separate data released by the BOJ on Friday showed the price of services, which measures the cost of businesses trading in services, was 1.8% higher in October than a year earlier. first. That’s 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 reach its 2% inflation target, wages must rise to offset rising costs. goods.

Slow wage growth is one of the reasons Japan’s recovery from the coronavirus pandemic has been delayed. The world’s third-largest economy shrank an unexpected 1.2% year-on-year in the third quarter, due to soft consumption.

The Tokyo CPI data raises the possibility of further increases in core consumer prices across the country, which in October were 3.6% higher than a year earlier, marking the level of 40 years old. Nationwide data for November is scheduled to be released on December 23.

Reporting by Takahiko Wada and Leika Kihara; Writing by Sam Holmes and Bradley Perrett

Our Standards: The Thomson Reuters Trust Principles.

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