MNI BRIEF: Japan's Jan Core CPI Rises 4.2% To 41-Year High

Japan's annual core consumer inflation rate accelerated to 4.2% y/y in January, up from December's 4.0% and the highest level since September 1981 when it also rose 4.2%, data from the Ministry of Internal Affairs and Communications released Friday showed.

The pace of the core CPI rise, which was in line with the Bank of Japan's expectations, will likely slow in or after February due to government’s subsidies to lower electric and gas charges, although electricity firms have applied to raise electricity charges in April.

The underlying inflation rate measured by the core-core CPI (excluding fresh food and energy) rose 3.2% in January, also accelerating from December's 3.0%.

The January rise was caused by high energy and food excluding perishables. The positive contribution from the energy item on CPI stood at 1.17 percentage point vs. 1.21 pp in December. Prices excluding perishables rose 7.4% y/y in January vs. 7.4% y/y in December and its positive contribution widened to 1.66 pp from 1.67 pp.

Prices for processed foods, accounting for 15% of the total CPI on which BOJ officials focus and are sensitive to economic activities, rose 7.7% in January vs 8.0% in December, indicating pass-through of cost increases might have peaked out.

The focus has shifted to services prices, which will rise further as the prices are directly linked to wages. Prices for eating-out rose 6.5% in January vs. 6.4% in December, showing firms are transferring high costs to retail prices.