MNI INSIGHT: BOJ Counts on FY18 Price Hikes After Weak Apr CPI

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan officials are shrugging off the slowdown in the

key inflation indicator in April and are still counting on the effects of

expected price hikes by more firms in the fiscal year that began last month, MNI

understands.

     The slower pace of year-on-year increase in the core consumer price index

(excluding fresh food) in April came as no surprise to BOJ officials as the core

CPI in central Tokyo, the leading indicator of the national data, had already

shown a slowdown to +0.6% in April from +0.8% in March.

     The year-on-year rise in the core CPI decelerated to 0.7% in April from

+0.9% in March on lower year-on-year increases in the prices for electricity,

mobile phones and hotels.

     The 16th straight year-on-year rise in April continued to be led by

gasoline and medical services.

     Prices are slow to respond to the modest economic recovery but the BOJ

board is likely to maintain its view that the momentum toward the 2% price

stability target is maintained on the assumption that the positive output gap

will continue widening, exerting upward pressure on prices, a person who is

familiar with BOJ thinking told MNI.

     The person added that BOJ officials are focused on how consumer prices will

be affected by corporate annual price revisions in April onward.

     --HIGHER RESTAURANT BILLS

     BOJ officials are encouraged by the recent upward move in the prices for

eating out (+0.9% on year in April vs. +0.7% in March and +0.6% in February) as

the food service industry has been under pressure from rising materials and

labor costs to raise prices.

     The consensus among BOJ officials is to be hopeful but cautious at the same

time.

     BOJ officials don't expect the pace of a pickup in consumer prices to

accelerate sharply anytime soon but they expect to see a gradual rise.

     Another person who is familiar with BOJ thinking said some companies that

are facing a limit to absorbing high costs are gradually raising their retail

prices while others are refraining from raising prices by boosting labor

productivity.

     --SLOWER GOODS PRICES

     Goods prices excluding volatile fresh food prices rose 1.3% on year in

April, with the pace of increase slowing from +1.6% in March.

     The pace of increase in overall goods prices decelerated sharply +1.0% in

April from +2.0% in March as the prices for fresh food eased after surging late

last year and staying high until recently.

     The prices for processed food (canned food, bread, snacks, beverages,

etc.), which accounts for about 15% of the total CPI, rose 1.0% on year in April

after rising at the same pace in March.

     BOJ data released Monday showed that the year-on-year rise in the corporate

goods price index, the key indicator of producer prices, continued to slow to

2.0% in April from 2.1% in March and 2.6% in February. In the CGPI, the prices

for domestic durable goods fell 1.1% on year in April, down further from -0.7%

in March.

     This indicates that corporate price hikes have been limited so far because

firms are cautious about raising retail prices amid sluggish private

consumption, the BOJ views.

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

--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com

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