BOJ: New Cost-Push Index Shows Rising Upward Pressure on CPI

     TOKYO (MNI) - The Bank of Japan's new cost-push indicator -- aimed at

gauging the pressure from costs that have not been passed on to prices -- showed

upward pressure on consumer prices is increasing, the BOJ said Wednesday.

     The BOJ estimated that the latest cost-push indicator stood at around 0.2%

in the third quarter, which means Japanese consumer prices are expected to rise

by 0.5 percentage point in about six months.

     This means the core-core CPI (excluding fresh food and energy), which rose

0.2% on year in September, is expected to rise to 0.7% in six months, the BOJ

said.

     The BOJ hasn't decided on how it should update the new indicator or release

its estimates.

     "The indicator will be zero percent if firms set sales prices at the level

that is in line with input costs based on the historically standard relationship

between them, while it will be a positive figure if costs are not fully passed

on to prices," the BOJ explained in its a special section of its Outlook Report.

     All the components of the cost-push indicator have been rising since the

turn of the year, with the exception for clothing.

     The cost-push index covers only about 200 items out of the core-core CPI

basket, which consists of around 520 items, the BOJ said.

     "But the two indicators are highly correlated; the cost-push indicator

leads the CPI by around two to three quarters," it said.

     "This approach complements the idea of the Phillips curve, which shows the

relationship between the output gap and the CPI."

     As the cost-push indicator rises amid a steady improvement in the output

gap, firms' are likely to gradually shift toward raising prices, the BOJ argued.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

--MNI BEIJING Bureau; +1 202-371-2121; email: john.carter@mni-news.com

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