Core inflation in Japan’s capital perks up, backs case for BOJ hikes

TOKYO: Core inflation in Japan’s capital accelerated for a fourth straight month in August, data showed on Friday (Aug 30), tracking comfortably above the central bank’s 2 per cent target and backing market expectations of more interest rate hikes ahead.
The Tokyo core consumer price index (CPI), which excludes volatile fresh food costs, rose 2.4 per cent in August from a year earlier, faster than a median market forecast of 2.2 per cent and the 2.2 per cent gain in July.
A separate index that strips away the effects of both fresh food and fuel costs, closely watched by the BOJ as a broader price trend indicator, rose 1.6 per cent in August from a year earlier after a 1.5 per cent rise in July.
The accelerated Tokyo inflation, considered a leading indicator of nationwide trends, largely reflected a phase-out of government subsidies on utility bills and rising rice prices due to intensifying shortages caused by extreme heat.
“Some one-time factors pushed up inflation but the underlying inflation trend will continue to moderate in coming months,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
But with wage growth expected to drive private consumption and push up inflation, the case is growing for the Bank of Japan to raise interest rates further, Minami said.
Separately, the Ministry of Economy, Trade and Industry upgraded its assessment on industrial output for the first time since March last year, after releasing data that showed output rose 2.8 per cent in July from the previous month.
Manufacturers surveyed by the ministry expect output to increase 2.2 per cent in August and contract 3.3 per cent in September, the data showed.
But an official cautioned vigilance over the outlook, adding production plans might not be as strong as expected in August.
The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25 per cent in July in landmark steps away from a decade-long radical stimulus programme.
BOJ Governor Kazuo Ueda said the central bank would raise rates further if inflation remains on track to durably hit its 2 per cent target in coming years, as the BOJ board projects.
The central bank expects rising wages to push up service prices and keep inflation durably around 2 per cent.