Tokyo inflation slows, offering support for Bank of Japan price outlook
INFLATION in Tokyo slowed more than expected in September, offering support for the Bank of Japan’s (BOJ) view that prices are set to cool further, and thus ultra-easy policy needs to stay in place.
Consumer prices excluding fresh food rose 2.5 per cent in the capital, decelerating from 2.8 per cent in August largely on the back of falling electricity and gas costs, according to the Ministry of Internal Affairs on Friday (Sep 29). Economists had forecast a reading of 2.6 per cent.
Behind the steady slowdown is the impact from government subsidies. Prime Minister Fumio Kishida’s decision to extend and expand utility subsidies helped reduce the overall inflation figure by 0.9 percentage points. The premier is now also mulling the size and content of his upcoming additional economic measures, after instructing the ruling party to put together a stimulus package focused on easing the impact from inflation and supporting wage growth.
“Inflation finally slowed in line with the BOJ’s expectation,” said Moe Nakahama, a research associate at Itochu Research Institute. “A higher-base level and slowdown in energy costs will offset the rise in service prices and core-CPI will gradually decelerate to the 2 per cent level.”
Tokyo data is a leading indicator of the national trend, suggesting the country’s inflationary momentum is also likely to continue softening.
A deeper measure of the inflation trend that strips out fresh food and energy prices decelerated to 3.8 per cent, slowing for the first time in three months and suggesting core-core inflation has peaked.
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Price developments will continue to be closely watched by the country’s central bank. The BOJ will likely need to revise up its price outlook when it meets in October, as inflation has remained stronger than initially anticipated.
In its latest outlook report released in July, the BOJ saw its key price gauge averaging 2.5 per cent for the year ending in March, expecting gains to moderate towards year-end.
The data firm Teikoku Databank says that consumers are increasingly weary of rising food costs, but price hikes may be significantly reduced from October.
BOJ governor Kazuo Ueda re-emphasised this week that the goal of achieving 2 per cent inflation accompanied by wage gains has not yet come into sight, citing high uncertainties for the economy and price trends.
The yen is currently hovering around 149 to the US dollar, raising renewed concern that the weak currency may push up import costs and the price of basic goods from here. Oil prices are also soaring again, posing another risk for the energy resource-poor nation.
A separate concern is the country’s lacklustre production against the backdrop of the global economic slowdown. A different report on Friday said that factory output was unchanged in August from July.
The sluggish production partly reflects weakening demand from trading partners. Japan’s exports fell for the second month in a row in August, led by slumps in mineral fuel and chip-making machinery.
“Global demand for production is falling on the back of economic slowdowns abroad,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence. “Exports aren’t doing well and I think production forecasts are too optimistic. We are likely to see companies hitting the brakes on capital investment.”
Despite ongoing inflation, consumption seems to have held somewhat steady. Retail sales gained 0.1 per cent in August from a month earlier, according to a report from the industry ministry on Friday. Sales grew 7 per cent from a year earlier. The return of overseas tourists likely continued to support spending at department stores and other shopping facilities.
Meanwhile, the unemployment rate held steady at 2.7 per cent, while the job offers-to-applicants ratio in August also remained unchanged from the previous month at 1.29. The latter data is a leading indicator of labour market trends and means that there were 129 jobs available for every 100 applicants. BLOOMBERG
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