ArrowArtboardCreated with Sketch.Title ChevronTitle ChevronEye IconIcon FacebookIcon LinkedinIcon Mail ContactPath LayerIcon MailPositive ArrowIcon PrintSite TitleTitle ChevronIcon Twitter
Economy

Japan's December consumer inflation ticks up, but still short of BOJ's 2% target

Tame 0.7% hike helped by sales tax rise and labor shortage

A suit shop clerk adjusts mannequins in Tokyo's Marunouchi business district on Jan. 16. Inflation in Japan is expected to stay low despite the BOJ's efforts.    © AP

TOKYO (Reuters) -- Japan's core consumer prices rose in December from a year earlier, data showed on Friday, nudging up from the previous month, but inflation was still well short of the central bank's elusive 2% target.

The tame data, which was also boosted by a sales tax increase last October, underscored the challenge faced by the country's central bank, which was expected to maintain its current stimulus policy, analysts said.

The core consumer price index (CPI), which includes oil costs but excludes volatile fresh food prices, rose 0.7% in December from a year earlier, the government data showed, matching a media forecast. In November, the index rose 0.5%.

The data release came after the BOJ on Tuesday revised down its consumer price forecasts, despite the central bank having nudged up its economic growth projections.

The BOJ kept its policy unchanged this week and Governor Haruhiko Kuroda reiterated the central bank's resolve to maintain its ultra-easy policy in light of soft inflation and lingering uncertainty abroad.

"Factors such as a labour shortage and a sales tax hike have helped corporations to raise prices ... but we expect consumer inflation will hover sideways on sluggish wage recovery," said Hiroaki Mutou, chief economist at Tokai Tokyo Research Institute.

"The BOJ has downgraded its consumer prices inflation projections but they are still rosy numbers. We expect the central bank will keep its current pace of stimulus policy."

The so-called core-core inflation index, which excludes fresh food and energy prices and is similar to the core index used in the United States, grew 0.9% in December from a year earlier, the fastest pace of growth since March 2016.

The index rose 0.8% in November.

A pickup in the core-core CPI, closely watched by the BOJ as a key measurement on the broad inflation trend, reflected price rises including for sweets, some prepared foods and restaurant meals, an official said.

Without the impact of a sales tax hike to 10% from 8% in October, core CPI index rose only 0.4% in December from a year earlier and the core-core inflation index grew 0.6%, the data showed.

"Consumer spending is expected to pick up after the sales tax hike dented it but the spending will unlikely be strong enough to boost consumer prices," said Takeshi Minami, chief economist at Norinchukin Research Institute.

The nation's economy expanded at an annualised 1.8% in the third quarter thanks to resilient domestic demand and business spending.

But exports fell for a 13th straight month in December, hurt by U.S.-bound shipments of cars, construction and mining machinery, suggesting weak external demand is likely to remain a drag on the trade-reliant economy for a while longer.

Analysts expect the economy probably shrank in the fourth quarter as October's sales tax hike hit consumer spending.

The central bank could consider later this year watering down its commitment to keep or cut its rock-bottom interest rates, if pessimism over the global outlook continues to recede, sources say.

Sponsored Content

About Sponsored Content This content was commissioned by Nikkei's Global Business Bureau.

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this monthThis is your last free article this month

Stay ahead with our exclusives on Asia;
the most dynamic market in the world.

Stay ahead with our exclusives on Asia

Get trusted insights from experts within Asia itself.

Get trusted insights from experts
within Asia itself.

Get Unlimited access

You have {{numberArticlesLeft}} free article{{numberArticlesLeft-plural}} left this month

This is your last free article this month

Stay ahead with our exclusives on Asia; the most
dynamic market in the world
.

Get trusted insights from experts
within Asia itself.

Try 3 months for $9

Offer ends July 31st

Your trial period has expired

You need a subscription to...

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers and subscribe

Your full access to the Nikkei Asian Review has expired

You need a subscription to:

  • Read all stories with unlimited access
  • Use our mobile and tablet apps
See all offers
NAR on print phone, device, and tablet media