Japan’s inflation hits 40-year high as BOJ sticks to easy policy

TOKYO, Nov. 18 (Reuters) – Consumer inflation in Japan accelerated to a 40-year high in October, driven by currency weakness and imported cost pressures that the central bank is shrugging off as it maintains a policy of ultra-low interest rates.

The national consumer price index (CPI) was 3.6% higher than a year earlier, more than the 3.5% increase expected by economists and the 3.0% increase in September.

It was the biggest jump since February 1982, when a Middle East crisis caused by the Iran-Iraq war disrupted crude oil supplies and caused a spike in energy prices.

The rise in the index, which excludes volatile fresh food prices but includes oil products, confirmed that inflation remained above the Bank of Japan’s (BOJ) 2% target for the seventh consecutive month.

But economists don’t expect the BOJ to join a global trend of rate hikes, seeing this year’s acceleration in inflation as a period of cost-raising measures that will fade as import costs stop rising.

Foreign supply restrictions have driven up prices of imported food, industrial raw materials and manufacturing parts, as well as a decline in the yen, which has fallen more than 20% in dollar terms this year.

“I have not changed my view that the increase will slow down any time soon,” said Takeshi Minami, chief economist at the Norinchukin Research Institute, noting the declines in global grain prices. “I expect inflation to peak towards the end of the year and price increases to start to ease in the new year.”

BOJ Governor Haruhiko Kuroda on Thursday reiterated a pledge to maintain monetary stimulus to achieve wage growth and sustainable and stable inflation. The central bank keeps long-term interest rates around zero and short-term interest rates at minus 0.1%.

The economy remains fragile as it recovers from the COVID-19 crisis. Inflation in Japan also remains subdued by the standards of other developed countries.

BEER, SAKE UP

Kuroda has argued that global raw material costs account for half of Japan’s price increases.

The October data showed increases in commodity prices and the weakness of the yen had led to a 15.2% increase in energy costs, while food excluding perishables was up 5.9%, the fastest increase since March 1981.

Food was 88% more expensive than one year previously, especially alcoholic beverages such as beer and sake.

Prices of durable household goods rose by 11.8%, their biggest increase since March 1975, driven by transport costs, raw materials and energy and by the weak currency.

The data suggests that Japanese companies may be shedding their deflationary mindset as they apply price hikes to a wider range of products. Of the 522 items that make up the core consumer price index, 406 were more expensive in October than a year earlier. In September there were 385.

The BOJ has predicted that average prices for the fiscal year to March 2023 will be 3% higher than in 2021-22, but that the increase will be only half that for 2023-24, as raw materials and other cost drivers will have declined .

In a sign that subcontractors are grappling with pressure on wholesale prices, the corporate goods price index rose 9.1% in the year to October.

Reporting by Tetsushi Kajimoto; Additional reporting by Chang-Ran Kim; Edited by Sam Holmes and Bradley Perrett

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