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Japan inflation lacks momentum, keeps BOJ's target elusive
[TOKYO] Japan's annual core consumer inflation was unchanged in October from the previous month as soft household spending kept firms from hiking prices, a sign the economy lacks the momentum needed to achieve the central bank's 2 per cent target.
The nationwide core consumer price index (CPI), which strips away the effect of volatile food costs, rose 1.0 per cent in October from a year earlier, government data showed on Thursday, matching a median market forecast.
With half of the gain due to higher energy costs, the Bank of Japan may face increasing difficulty achieving consistent price growth as global trade frictions and slowing Chinese demand cloud the outlook for the export-reliant economy.
In a sign inflationary pressure is barely building up, an index excluding the effect of both fresh food and energy costs showed inflation of 0.4 per cent in October, steady for three straight months.
"The data shows it will take quite a long time for inflation to hit the BOJ's target," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"The BOJ is unlikely to change its stance" of maintaining its massive stimulus programme, he added.
Stubbornly soft inflation has dashed the BOJ's hopes that solid economic growth would translate into higher prices, forcing the central bank to maintain its huge stimulus despite unwelcome side-effects such as the erosion of financial institutions' profits from years of near-zero interest rates.
Despite grumbling over the rising negative impact of its stimulus, the BOJ is likely to keep inflation as its primary policy consideration, sources have told Reuters.
Many analysts expect core consumer inflation to stall at or slow from current levels in coming months, given recent declines in crude oil prices.
With petrol prices starting to fall, the boost to inflation from energy costs may start to taper off as early as from the November data, a government official briefing reporters on the data said.
The darkening outlook for Japan's economy also bodes ill for the BOJ's efforts to fire up inflation to its elusive target.
Escalating Sino-US trade frictions are beginning to hurt Japanese business sentiment, stoking fears that any rebound in growth from a economic contraction in July-September could be weaker than expected.
Overall annual consumer inflation, which includes fresh food and energy costs, ticked up to 1.4 per cent in October from 1.2 per cent in the previous month, as summer typhoons and rain damaged crops and pushed up vegetable prices.
Analysts say such rises in grocery prices could leave households with less money for non-essential spending, curbing consumption.
"Underlying trend inflation remains weak, and prices will continue to be swayed by external factors like currency and oil moves," said Taro Saito, an economist at NLI Research Institute.
"There's a good chance core consumer inflation will slide below 1 per cent by the end of this year."