Sat, Jul 01, 2023 page12

• Tokyo’s inflation goes up, hinting at national rise

  • Bloomberg
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  Inflation in Tokyo accelerated for the second time in three months this month, an outcome that supports expectations that the Bank of Japan (BOJ) would raise its inflation forecast next month.

  Consumer prices excluding fresh food increased 3.2 percent in the Japanese capital from a year earlier, rising at a slightly faster pace than last month’s revised figures, the Japanese Ministry of Internal Affairs said yesterday.

  The smaller drag from electricity prices was the main cause of the acceleration, following a government decision to allow utilities to raise charges from this month.

  However, the price growth was slower than economists had forecast.

  Separate data showed factory output declined last month from the previous month for the first fall since January as recovery momentum sputtered more than expected.

  The labor market remained relatively tight, with the jobless rate unchanged at 2.6 percent, although the number of jobs available for every applicant slightly decreased to 1.31.

  The slightly faster pace of price gains supports the view that the Bank of Japan might revise up its inflation projections at its meeting at the end of next month.

  “It’s clear that Japan’s inflation has been stronger than the BOJ expected. There is no doubt that the BOJ will raise its inflation forecast for this year next month,” said Yoshiki Shinke, a senior executive economist at Dai-Ichi Life Research Institute. “The question is how much and how quickly they will try to match the projection with reality.”

  The central bank is widely expected to revise up its 1.8 percent price projection for this fiscal year at next month’s meeting, narrowing the gap with private economists’ prediction of 2.6 percent.

  Still, while Tokyo prices, a leading indicator of the national trend, show that businesses are continuing to pass their costs onto consumers, it was unclear whether Japan’s cost-push inflation had turned into price growth led by demand.

  A deeper measure of the inflation trend that strips out fresh food and energy prices unexpectedly decelerated, slowing to 3.8 percent. The gauge is free from the impact of government measures for fuel prices, which still hold down inflation by about 1 percentage point.

  Overall prices also slowed down as electricity costs dragged less.

  Speaking at a panel with the heads of the US Federal Reserve and the European Central Bank this week, Bank of Japan Governor Kazuo Ueda underscored his bank’s outlier status, saying that he needs reasonable certainty that inflation would pick up after an expected slowdown toward the end of this year before deciding on any policy turnaround.

  “It’s fair to assess that the economy is getting normalized on the back of resilient domestic demand, but that doesn’t mean the BOJ will have to tighten policy,” said Taro Saito, head of economic research at NLI Research Institute. “It’s highly unlikely that the kind of inflation the BOJ wants — accompanied by thorough cost passing and wage growth — will settle in. Ueda seems cautious about that and that’s why I think he won’t easily tighten.”

  The impact of the global slowdown on Japan is another factor that the bank is closely watching.

  Factory data showed a 1.6 percent drop in output from the previous month, although production levels were still 4.7 percent higher than a year earlier.

  Output from the auto sector fell 8.9 percent from the prior month, the biggest drop since supply snarls held up production a year ago.

  Lithium storage batteries and chip-measuring devices were among other items logging falls, while chip-manufacturing equipment output gained.
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