MNI BRIEF: Japan's Dec Core CPI Rises 4%; Highest in 41 Years

Japan's annual core consumer inflation rate accelerated to a 41-year high of 4% in December, up from 3.7% in November but in line with the expectations of Bank of Japan officials, data by the Ministry of Internal Affairs and Communication released Friday showed.

The quickening pace of inflation will complicate the BOJ's efforts to maintain its easy monetary stance, especially its yield curve control policy after it kept the 50bp band around its 10-year yield target after its meeting on Wednesday. (See MNI BOJ WATCH: Kuroda Dismisses Market Speculation On YCC Hike)

The pace of core CPI rise will accelerate further in the wake of ongoing pass-through of cost increases. The underlying inflation rate measured by core-core CPI (excluding fresh food and energy) rose 3% in December, also up from November's 2.8%. The December rise was caused by rising prices for energy and food excluding perishables.

The positive contribution from the energy item on CPI stood at 1.21 percentage point vs. 1.06 pp in November. Prices excluding perishables rose 7.4% y/y in December from 6.8% and its positive contribution widened to 1.67 pp from 1.54 pp. Prices for processed foods, accounting for 15% of the total CPI on which BOJ officials focus and are sensitive to economic activities, rose 8% in December vs. 7.5% in November. Prices for eating-out rose 6.4% in December vs. +5.8% in November, showing firms are transferring high costs to retail prices.

The BOJ's January Outlook Report kept the core CPI forecast for the 2023 fiscal year steady at 1.6%, but lifted the 2024 forecast to 1.8% from 1.6%.