Consumer inflation in Japanese capital rises at fastest pace in 40 years

  • Tokyo Nov core CPI up 3.6% vs. f’cast +3.5%
  • Tokyo CPI stays above BOJ’s 2% target for 6th consecutive month
  • Data point to widening inflationary pressures

TOKYO, Nov 25 (Reuters) – Core consumer prices in Japan’s capital, a leading indicator of national trends, rose at their fastest annual rate in 40 years in November and beat the 2% target from the central bank for a sixth consecutive month, signaling rising inflation. pressure.

The increase, mainly due to food and fuel bills but extending to a wider range of goods, has cast doubt on the Bank of Japan’s (BOJ) view that recent cost inflation is will prove transitory, some analysts said.

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

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

While the rise was mainly driven by electricity bills and food prices, businesses were also charging more for durable goods, as the weak yen pushed up the cost of imports, the data showed.

“The price increases are spreading and suggest that the weak yen could keep inflation high until next year,” said Mari Iwashita, chief economist at Daiwa Securities.

“Underlying consumer inflation could remain around the BOJ’s 2% target for much of next year, which would prevent the bank from continuing to assert that the price increases are temporary. “

Tokyo’s core-core CPI, which excludes fuel as well as fresh food, was 2.5% higher in November than a year earlier, following October’s 2.2% annual gain.

BOJ AN OUTLIER

The BOJ has kept interest rates extremely low, believing inflation will slow below its target next year when the boost from fuel price gains wears off. The central bank therefore stayed away from a wave of monetary tightening across the world aimed at tackling soaring inflation.

Contrary to the experience of some Western economies, where wages have jumped with inflation, growth in wages and service prices remains weak in Japan.

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

Separate data released by the BOJ on Friday showed the Business Services Price Index, which measures the prices businesses charge themselves for services, was 1.8% higher in October than a year earlier. former. That was slower than a 2.1% annual gain seen in September.

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 among the factors holding back Japan’s recovery from the coronavirus pandemic. The world’s third-largest economy unexpectedly contracted an annualized 1.2% in the third quarter, partly on weak consumption.

CPI data from Tokyo raises the odds of further rises in core consumer prices nationwide, which in October were 3.6% higher than a year earlier, also marking a high in 40 years. National data for November is expected to be released on December 21. 23.

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

Our standards: The Thomson Reuters Trust Principles.

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