MNI: Semiconductor Shortages Won't Boost CPI Views: BOJ

Lingering supply shortages of semiconductor chips are restricting production in Japan, but are not expected to boost consumer prices as wage growth remains tepid, MNI understands.

At the same time, BOJ officials expect a recovery in chip supplies in the third quarter, though not at levels that automobile makers demand.

The semiconductor shortages have however pushed up consumer prices overseas as strong demand and firm wage hikes are making it easy for firms abroad to raise their retail prices for electronic goods and automobiles.

But weak wage gains in Japan make it difficult to hike retail prices and BOJ officials don't expect pent-up demand for spending to increase sharply. The BOJ expect private consumption to pick up again in or after the third quarter, albeit gradually, and an uptrend in private consumption to become evident in fiscal 2022.

Japan's core CPI rose 0.1% y/y in May, after falling 0.1% in April, for the first rise in 14 months. The core-core CPI (excluding fresh food and energy) -- a key indicator of the underlying trend of inflation – fell 0.2% in May after falling 0.2% in April.

COMMODITY INPUTS, BUSINESS COSTS

Businesses are also suffering from higher international commodity prices, but show caution on passing those along to retail trade and households.

Bank officials don't expect the high costs to seriously squeeze corporate profits and don't expect a virtuous cycle from income to spending to pause, but they are keeping a close eye on future developments, MNI understands.

Japan's corporate goods price index rose 5.0% y/y in June, slowing from +5.1% in May, which was the highest level since September 2008.

Prices for raw materials rose 49.8% y/y in June, accelerating from +46.4% in May, but prices for final goods rose only 2.8% y/y in June, unchanged.