Japan’s Inflation Hits 40-Year High In Nov With Consumer Price Hikes Spreading To Broader Sectors

photo credit: AMRO Asia

Japan’s core consumer inflation hit a fresh 40-year high of 3.7 per cent in November as companies continued to pass on rising costs to households, data showed on Friday, a sign price hikes are spreading to broader sectors of the economy.

The increase casts doubt on the Bank of Japan’s view recent cost-push inflation will prove temporary and may keep alive market expectations the central bank will further roll back its massive stimulus next year, analysts say.

The year-on-year increase in Japan’s core consumer price index (CPI), which excludes volatile fresh food but includes energy costs, matched a median market forecast and followed a 3.6 per cent rise in October.

It was the biggest rise since a 4.0 per cent jump seen in December 1981, when inflation was still high from the impact of the 1979 oil shock and a booming economy.

The so-called “core-core” index, which strips away both fresh food and energy prices, rose 2.8 per cent in November from a year earlier, accelerating from a 2.5 per cent increase in October.

The rise in the core-core index, which the BOJ closely watches as a gauge of demand-driven inflation highlights how inflationary pressure is building in once deflation-prone Japan and could persist well into next year.

The data will likely be among key factors the BOJ will scrutinise when it produces fresh quarterly inflation forecasts at a two-day policy meeting ending on Jan. 18.

Many analysts expect the BOJ to revise up its present forecast, made in October, for core consumer inflation to slow to 1.6 per cent next fiscal year after hitting 2.9 per cent in the current fiscal year ending in March 2023.

Japan’s economy unexpectedly shrank an annualised 0.8 per cent in the third quarter as global recession risks and higher import costs weighed on consumption and businesses.

While analysts expect growth to have picked up in the current quarter, there is uncertainty on whether wages would rise enough to compensate households for the increased cost of living and underpin consumption.

The BOJ stunned markets on Tuesday by tweaking its yield control and allowing long-term interest rates to rise more, a move market players see as a prelude to a further withdrawal of its massive stimulus programme.

BOJ Governor Haruhiko Kuroda, who will see his term end in April, has said the bank had no intention to roll back stimulus as inflation was set to slow below 2 per cent next year.

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