[TOKYO] Japan's policy makers should monitor the gross domestic product deflator to measure progress in stoking inflation, influential members of a panel that advises the government said on Friday.
Inflation is slowing due to falling oil prices, but Japan is likely to avoid deflation as rising unit labour costs suggest the GDP deflator will rise, private-sector members of the Council of Economic and Fiscal Policy (CEFP) said in a statement on Friday.
The proposal suggests that Prime Minister Shinzo Abe's government may be relaxed about the recent collapse in oil prices and is unlikely to urge the Bank of Japan to ease policy further to meet its inflation target.
Most of the private-sector advisers on the CEFP are academics and their proposals often form the basis for the government's formal position on policy and the economy.
The GDP deflator, which is used to adjust GDP for changes in prices, is an important indicator because it also reflects wages and corporate profits, the proposal said.
The GDP deflator has been rising since last year, excluding the impact of a sales tax increase in April, which shows good progress in pulling away from 15 years of nagging deflation, the proposal said.
The BOJ is buying government debt and risk assets with the aim of driving inflation to 2 per cent sometime around the next fiscal year starting in April.
The BOJ expanded its debt purchases in October as oil princes fell. However, officials in the government and the BOJ have turned more cautious about easing policy again as this could cause the yen to fall too quickly.
Central bank officials also expect the economy and prices to pick up once companies and households reap the benefits of cheaper oil prices.