MNI INSIGHT: BOJ Cautious Inflation View Intact Post-Tokyo CPI

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan officials remain vigilant over the outlook for

inflation, as sluggish Tokyo October consumer price inflation data, published

Friday, reconfirmed that the slow pace of improvement continues, MNI

understands.

     Those officials, however, maintain the view that the momentum toward

achieving the 2% price target remains and they still believe that upward

pressure on consumer prices will pick up, albeit slowly.

     They also think inflation will not accelerate sharply, as the structural

factors restricting price rises laid out in July will continue.

     --SLOW TOKYO CPI

     In central Tokyo, the core CPI excluding fresh food prices rose 1.0% on

year in October for the 16th straight year-on-year rise, unchanged from

September and coming in line with the MNI median economist forecast of +1.0%,

government data released Friday showed.

     Japan's inflation rate was again mainly boosted by energy costs (+7.4% on

year in October vs. +6.4% in September).

     Boosted by the higher crude oil price, the average price of regular

gasoline in Japan rose to Y160.00 per liter this week, the eighth straight

weekly rise, to the highest level since November 2014.

     The crude oil price has a quick impact on gasoline prices in Japan and it

will affect petroleum products, gas and electricity prices with about a six

months lag.

     Given the Tokyo data is a leading indicator of the national average, the

core national CPI for October (due on Nov. 22) is unlikely to accelerate from

the +1.0% seen in September.

     --NATIONWIDE OUTLOOK

     BOJ economists expect core national CPI to move around 1% or slightly

higher for the time being and they judged that the track record for the

April-September period was weaker than they had expected back in July.

     The core-core CPI (excluding fresh food and energy) -- a key indicator of

the underlying trend of inflation that BOJ economists are focused -- rose 0.6%

on year in October, slowing from +0.7% in September.

     On the bright side, the Tokyo CPI data showed that prices for goods have

been rising gradually, reflecting higher material and labor costs. The prices

for all goods rose 2.7% on year in October, with the pace of increase

accelerating from September's 2.1%, as fresh vegetable prices rose following

Japan's autumn natural disasters.

     The prices of goods excluding volatile fresh food rose 1.6% on year in

October, with the pace of increase also decelerating from 1.5% in September.

     On the down side, prices for household durable goods fell 3.0% on year in

October, although the pace of decline slowed from -3.1% in September, indicating

that companies are generally cautious about passing higher costs onto consumers

amid sluggish household consumption.

     --SLOW SERVICE PRICES

     Weakness remains in service prices, which account for just over a half of

the total CPI basket, perhaps surprising BOJ officials who expected service

prices to have picked up faster.

     Overall service prices rose 0.6% on year in October, accelerating from 0.5%

in September, weighed partly by the drop in accommodations (-0.3% on year in

October vs. +0.8% in September).

     The prices for eating out rose 0.9% on year in October, slowing from +1.0%

in September.

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

--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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