Core consumer inflation in Japan accelerated to 2.8% in August, hitting its fastest annual pace in nearly eight years and beating the central bank’s 2% target for a fifth consecutive month as the pressure on commodity prices and the weakness of the yen increased.
The strength of inflation in August bolstered growing suspicions among economists that price pressure will last longer than the Bank of Japan (BOJ) forecast, although many still do not expect an immediate change in price. its ultra-accommodating policy.
The BOJ will end a two-day policy meeting on Thursday in which analysts expect it to consider the fragility of the economic recovery by deciding to keep short-term and long-term interest rates near zero.
“The weakness of the yen imports inflation in Japan. Core consumer inflation is expected to hit 3% in October,” said Takeshi Minami, chief economist at Norinchukin Research Institute.
“Inflation may stay above 2% for another year or so. This could prompt the BOJ to change its view of prices,” he said.
The rise in the core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, was slightly above the median market forecast for a 2.7% increase and followed an increase of 2.4% in July.
The increase, the fastest since October 2014, was largely due to higher utility bills, higher food and grocery prices and the dampening effect on data from reductions in mobile phone charges implemented last year.
Analysts expect core consumer inflation to top 3% in October, when many retailers plan to raise prices and the base effect of further cuts in mobile phone charges in 2021 will disappear from the calculation.
An index removing both fresh food and energy costs, which the BOJ closely monitors as a key indicator of the underlying strength of inflation, was 1.6% higher in August than a year earlier, marking its fastest annual growth rate since 2015.
The BOJ’s dovish policy stance contrasts with expectations that the US Federal Reserve will proceed with an interest rate hike on Wednesday that will widen a differential with Japanese yields and possibly trigger another round of yen selling.
Inflation data highlights the dilemma facing the BOJ as it attempts to prop up a weak economy by keeping interest rates rock-bottom, which in turn fuels an unwanted drop in the yen that drives higher import costs.
While goods prices were 5.7% higher in August than a year earlier, services prices rose just 0.2%, according to CPI data. This dashed the hopes of policymakers that the labor-intensive service sector would raise prices more sharply and offset the cost by raising wages.
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With inflation still modest compared to price increases seen in other major economies, the BOJ has pledged to keep interest rates extremely low, remaining an outlier in a global wave of monetary policy tightening.
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