Web Stories Saturday, February 24

TOKYO: Japan’s core inflation stayed above the central bank’s 2 per cent target in December but slowed for a second straight month, data showed on Friday (Jan 19), reinforcing expectations it will be in no hurry to phase out its massive monetary stimulus.

The data, which matched median market forecasts, highlights receding inflationary pressure from raw material imports and heightens the chance the Bank of Japan will maintain ultra-low interest rates at next week’s meeting.

The core consumer price index (CPI), which excludes fresh food but includes energy costs, in December rose 2.3 per cent from a year earlier, government data showed, marking the slowest pace of increase since June 2022.

It followed a 2.5 per cent rise in November.

The slowdown was largely due to an 11.6 per cent fall in energy costs, which reflected the base effect of last year’s sharp rise and government subsidies to curb gasoline and utility bills.

The price of food and daily necessities continued to rise, in a sign of the pain higher living costs is inflicting on households.

The “core core” index that strips away both fresh food and energy prices, closely watched by the BOJ as a better gauge of the broader price trend, in December rose 3.7 per cent from a year earlier after a 3.8 per cent gain in November.

Services prices rose 2.3 per cent in December from a year earlier, the data showed, underscoring broadening inflationary pressure.

Japan’s core consumer inflation has exceeded the BOJ’s 2 per cent target since April last year as soaring raw material costs prodded many firms to pass on higher costs.

After peaking at 4.2 per cent in January, inflation has slowed due to easing cost-push pressures in line with the BOJ’s forecasts.

The key from here is whether wage hikes accelerate enough to give households purchasing power, so that companies can continue price hikes and keep inflation durably at the BOJ’s 2 per cent target.

While the BOJ is expected to end negative rates sometime this year, Governor Kazuo Ueda has stressed the need to maintain ultra-loose policy until inflation can stay around 2 per cent for a durable amount of time while wages rise on a sustainable basis.

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