MNI: BOJ Worried About Surge in Oct Tokyo CPI, Hit To Spending

Bank of Japan officials are concerned that a sharp rise in October's Tokyo Consumer Price Index could signal an acceleration in nationwide inflation, which may pave the way for the Bank to revise its inflation forecasts.

MNI understands officials are worried the October Tokyo core CPI will rise sharply from September's 2.6% print, with fast rising prices threatening to sap consumer spending.

The data is due on Oct. 28, the second day of the Bank of Japan's two-day monetary policy meeting where officials will review medium-term economic growth and inflation forecasts. BOJ economists will need to analyse the data quickly ahead of a press conference by Governor Haruhiko Kuroda.

The expected rise in the October Tokyo CPI will mainly be driven by higher resource prices and a fall in the yen to a 24-year low against the U.S. dollar. The BOJ has indicated it will not alter its easy policy stance despite rising inflation and a sinking yen (See: MNI Insight: BOJ Unmoved By Rising Inflation, Slumping Yen).

The October Tokyo core CPI will be lifted by corporate price revisions, which are usually implemented in April and October in Japan, bank officials warn. Additionally, the positive impact of weaker mobile phone charges on the CPI will fade in October.

Bank officials have observed that retail price hikes and their pass-through has been stronger than predicted in July. Policymakers have underscored the importance of wage hikes maintaining pace with price rises in order to meet its 2% price target and boost medium- to long-term inflation expectations.

Wages need to rise to ensure household real incomes do not drop, which will undermine consumer spending as a main engine for economic recovery.