Japan’s inflation trend measures reach record high

JAPAN’S underlying inflation measures increased the most on record, as higher energy prices and a weak yen continue to push businesses to pass their costs onto consumers.

Multiple gauges showed new records and signalled broader inflation according to data released by the Bank of Japan on Tuesday (Aug 23).

The trimmed mean, a measure of price growth that factors out the biggest gains and falls, renewed its record by rising 1.8 per cent from a year earlier. The mode, or the most frequent pace of price increase, climbed to 0.7 per cent, the highest gain in data going back to 2001.

Meanwhile, the share of items showing a price increase in the consumer price basket rose to 73.2 per cent, the highest proportion on record.

The still relatively small gains compared with Europe and the US are unlikely to lead the Bank of Japan to normalise policy anytime soon. But the results suggest Japanese businesses and consumers are experiencing a shift in inflation dynamics they haven’t seen in a long while, after going through a prolonged period of deflation.

A key factor going forward is whether wage growth will catch up with inflation, as their lag has left concerns over the sustainability of the price gains, and the potential impact on domestic spending.

Consumer prices excluding fresh food, a key gauge for the central bank, rose 2.4 per cent last month, the highest level since 2008 barring tax-hike years. Some economists say it’s on the path for a another increase to 3 per cent or above later this year, which would further complicate the BOJ’s task of communicating its reasoning behind sticking with rock-bottom interest rates. BLOOMBERG