Core consumer inflation in Japan hit a new four-decade high as businesses continued to pass on rising costs to households, the data showed, a sign that price rises were widening and could keep the central bank under pressure to scale back massive stimulus.
Months before Tuesday’s surprise change to its yield-control policy, policymakers at the Bank of Japan (BOJ) had been discussing the potential impact on the market of a future exit from ultra-low interest rates, revealed the minutes of their October meeting on Friday.
With many retailers forecasting further hikes for food products next year, the outlook for inflation and the timing of any further BOJ policy adjustments are confusing with the risk of a global recession and uncertainty over the rate of wage increases, according to analysts.
“The barrier to policy standardization is not low. The global economy could deteriorate in the first half of next year, making it difficult for the BOJ to take any action that could be interpreted as monetary tightening,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
Japan’s core consumer price index (CPI), which excludes volatile fresh food but includes energy costs, rose 3.7% in November from a year earlier, according to sources. data released Friday, matching market forecasts and recovering from a 3.6% gain in October.
This is the largest increase since a 4.0% jump seen in December 1981, when inflation was still high due to the impact of the 1979 oil shock and a booming economy.
Along with utility bills, prices rose for a wide range of products from fried chicken to smartphones to air conditioners, a sign of growing inflationary pressure, the data showed.
Many analysts expect core consumer inflation to slow near the BOJ’s 2% target next year as the base effect of past fuel price spikes wears off. dissipates and that the impact of government subsidies to reduce electricity prices takes effect from February.
But an index that removes these one-off factors can stay elevated and keep the pressure on the BOJ to remain vigilant for the possibility of higher demand-led inflation.
The so-called core-core index, which excludes both fresh food and energy prices, rose 2.8% in November from a year earlier, following a 2.5% increase % in October.
The rise in the core-core index, which the BOJ is watching closely as an indicator of demand-led inflation, highlights how inflationary pressure is building in a once-deflation-prone Japan and could persist until next year.
Already, companies plan to raise prices for 7,152 food items in the first four months of 2023, more than double the number in the same period this year, research firm Teikoku Data Bank said in a report.
“We will likely see a rush of price increases next year that could be more intense than this year,” as companies grapple with rising labor and distribution costs, Teikoku Data said. Bank.
The BOJ stunned markets on Tuesday by adjusting its yield controls and allowing long-term interest rates to rise further, a move market participants see as a prelude to another withdrawal from its massive stimulus package. .
BOJ Governor Haruhiko Kuroda, who will see his term end in April, said the bank has no plans to backtrack on stimulus as inflation is expected to slow below 2% this month. next year.
But the October minutes showed how many of his fellow board members are turning their attention to the risk of an inflation overshoot and the prospects of a withdrawal of stimulus.
“Given structural changes such as the move away from globalization, past experiences in Japan do not necessarily apply. We cannot rule out the possibility of a big overshoot in inflation,” a member quoted in the October minutes said.
CPI data will likely be among the key factors the BOJ will consider when it produces new quarterly inflation forecasts at a two-day policy meeting ending Jan. 18.
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