Japan’s core consumer inflation breached the central bank’s 2 percent target for the third consecutive time in June, as the economy is facing a higher cost of imports due to a rise in global raw material prices.
The core consumer price index (CPI), excluding volatile fresh food costs but including energy costs, rose 2.2 percent in June from a year ago, government data showed. The core-core CPI, excluding volatile food and fuel costs, rose 1 percent in June from a year ago, the highest increase since 2016.
The last time the headline inflation rate reached 2.2% was in March 2015, in part because of an increase in the consumption tax. According to the Ministry of Internal Affairs and Communications, June’s core CPI was the highest since September 2008 without the impact of the tax increase.
The third-consecutive rise in core CPI followed by 2.1 percent in both April and May, challenges the BOJ’s view that the cost-push inflation is temporary and does not call for a change in its ultra-low rate policy.
Rising fuel and food prices, partially blamed on the Ukraine-Russia war and a sharp decline of yen ballooning import costs, are anticipated to hover above BOJ’s target for most of this year, analysts say.
“Price hikes are spreading more broadly,” said Hideo Kumano, executive chief economist at the Dai-ichi Life Research Institute, anticipating core consumer inflation to quicken up toward the year’s end.
Government subsidies to oil wholesalers to soothe gasoline and kerosene prices have aided in somewhat taming the core CPI at a time when energy prices are at a peak due to Russia’s war in Ukraine.
Kerosene prices have increased 23.4 percent from a year earlier, while gasoline has become 12.2 percent costlier. Notably, the prices for both energy sources decelerated from the previous month. City gas costs hiked up 21.9 percent.
BOJ Governor Haruhiko Kuroda said on Thursday after a policy meeting that wage growth is not increasing at the same pace as inflation, He emphasized the need for monetary easing instead of policy tightening to back the economic recovery from the COVID-19 fallout.
Food prices, excluding those for perishables, increased 3.2 percent, the fastest increase since 2009. Higher raw material and energy costs have resulted in a cost-increase in hamburgers and chocolate to bread.
But, comparatively, the increase in prices in Japan is lower than that of the United States and European economies, where inflation rates are touching decades-high records.
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Inflation in the 19 countries sharing the euro currency has reached a record level of 8 percent. The inflation rate in the United Kingdom last month reached its 40-year high.
A recent resurgence in coronavirus cases driven by the highly transmissible BA.5 subvariant has clouded the outlook for the Japanese economy. It would be difficult to predict how much dent will this resurgence cause in the economy? But, for now the Japan’s central bank sees looming inflationary pressure to deepen, with insignificant wage growth.
The Bank of Japan announced an upward revision of the core consumer inflation forecast for the ongoing fiscal March 2023 to 2.3 percent from 1.9 percent but kept its ultra-low interest rates the same notwithstanding a sharp tightening of policy by global peers to combat price increases.