November 28, 2022

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Consumer inflation in the Japanese capital rose at the fastest pace in 40 years

Consumer inflation in the Japanese capital rose at the fastest pace in 40 years
  • Tokyo core CPI for November rose 3.6% vs f’cast +3.5%
  • The Tokyo CPI remains above the BoJ’s 2% target for the sixth consecutive month
  • The data confirms broadening inflationary pressure

TOKYO (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 exceeded the central bank’s 2% target for the sixth consecutive month, pointing to widening inflation. the pressure.

Some analysts said the increase, which was mostly driven by food and fuel bills but extended to a broader range of commodities, casts doubt on the BoJ’s (BOJ) view that recent cost-push inflation will be temporary.

On Friday, government data showed that Tokyo’s core consumer price index, which excludes fresh foods but includes fuel, was 3.6% higher in November than a year earlier. The rise beat the average market expectation of 3.5% and the increase of 3.4% in October

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

The data showed that while the rise was mostly driven by electricity bills and food prices, companies were charging more on durable goods as a weaker yen made imports more expensive.

“The price increases are widening and suggest that a weaker yen could keep inflation high in the coming year,” said Mari Iwashita, chief market economist at Daiwa Securities.

“Core consumer inflation may remain near the BoJ’s 2% target for most of next year, which will make it difficult for the bank to continue to argue that price increases are temporary.”

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Tokyo’s core CPI, which excludes fuel and fresh food, was 2.5% higher in November than a year earlier, up from an annual gain of 2.2% in October.

BOJ AN OUTLIER

The Bank of Japan has kept interest rates very low on the understanding that inflation will slow below its target next year when the support from fuel price gains dissipates. So the central bank has stayed away from the wave of monetary tightening around the world with the aim of combating spiraling inflation.

In contrast to the experience of some Western economies, where wages rose with inflation, growth in wages and prices for services 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, after an annual increase of 0.8% in October. That compares to a 7.7% rise in durable goods prices for November, which followed October’s annual gain of 7.0%.

Separate data released by the Bank of Japan on Friday showed that the corporate services price index, which measures the prices companies charge each other for services, was 1.8% higher in October than a year earlier. That was slower than the 2.1% annual increase in September.

Bank of Japan Governor Haruhiko Kuroda has repeatedly said that for inflation to sustainably reach its 2% inflation target, wages must rise enough to offset the rise in commodity prices.

Slow wage growth has been among 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, in part due to weak consumption.

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The Tokyo CPI data increases the chance of further hikes in core consumer prices nationwide, which in October were 3.6% higher than a year earlier, also hitting a 40-year high. National data for November is due on December 23.

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

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