Japan’s inflation speeds up, keeping BOJ rate hike in play
JAPAN’S inflation accelerated for a second month in June, backing the case for central bank officials to consider raising interest rates when they gather to set policy at the end of the month.
Consumer prices excluding fresh food gained 2.6 per cent from a year ago, quickening from 2.5 per cent in May on slightly higher energy costs, the ministry of internal affairs reported on Friday. The reading came in a tad weaker than economists’ consensus for a 2.7 per cent increase, but extended the run of inflation at or above the Bank of Japan’s 2 per cent target to a 27th month.
The result largely mirrored movements in the price gauge for Tokyo released late last month that showed an acceleration on the back of higher energy prices.
Hotter prices will give the central bank a reason to mull a rate hike at the policy board meeting that concludes on July 31. One in three BOJ watchers expects the bank to raise rates in July, according to a Bloomberg survey last month.
The BOJ is also scheduled to unveil a roadmap for cutting its bond purchases and release its economic outlook report, including updated inflation forecasts. In the April edition, the bank projected the key price gauge would rise 2.8 per cent on average this fiscal year.
The sustained inflationary pressure is a positive sign for Japan’s economy, which has shown mixed signs lately. Earlier this month, Japan’s gross domestic product figure for the January-March quarter was revised lower to show a deeper contraction, and household spending unexpectedly fell from a year ago in May.
At the same time, workers’ base salaries jumped the most since 1993 in a bright sign for the prospects of achieving a virtuous cycle tying wage growth to demand-led price gains. Also, exports grew for a seventh straight month in June, supporting the view that economic growth will rebound somewhat in the second quarter.
The nationwide price gains were mostly driven by higher energy prices after the government finished phasing out utility subsidies. The impact was most pronounced in natural gas prices, which rose 3.7 per cent from a year earlier, compared with a 3.2 per cent drop in May.
Electricity prices were less affected by the end of the subsidies due to a higher base last year, when operators significantly raised their rates in response to surging commodity costs. BLOOMBERG
Share with us your feedback on BT's products and services
