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MNI (London)
By Hiroshi Inoue
     TOKYO (MNI) - Bank of Japan sees higher labour and material costs pushing
companies to raise retail prices, putting some upward pressure on CPI, although
no sharp acceleration is seen in the level of inflation and the Quarterly
Outlook report due on Thursday will likely judge the 2% price stability target
will not be achieved by March 2022, MNI understands.
     Although many companies have attempted to absorb higher costs, concerned
higher prices will impact sales, some, particularly in the restaurant and
processed food sectors are passing on the increased labour costs in the form of
price hikes.
     This is having some effect on nationwide inflation levels, but BOJ
officials are uncertain as to strength and sustainability of the move, in
particular how they transfer over into both consumer price expectations and
corporate profitability.
     Consumer prices have lagged Japan's output gap, which, according to the
BOJ, widened to 2.23 percentage points in the October-December quarter, up from
1.26 percentage points in July-September.
     It was the ninth straight quarter with a positive output gap, which should
increase pressure on consumer prices and inflation expectations, albeit with a
lag of a few quarters, although the BOJ expects the positive output gap to have
narrowed in the first quarter.
     Data released late last week showed Japan's national average core CPI
(excluding fresh food) rose 0.8% on year in March for the 27th  straight
year-on-year rise following +0.7% in February, still a long way shy of the 2%
price target.
     The core-core CPI (excluding fresh food and energy) -- a key indicator of
the underlying trend of inflation -- rose 0.4% on year in March, unchanged from
+0.4% in February.
     Although the BOJ sees the mechanism for higher prices maintained, officials
remain somewhat concerned over their outlook, as inflation expectations are
stickier than expected, failing to gain upward traction - caught needing a
sustainable rise in consumer prices to boost expectations.
     Officials will pay close attention on how annual corporate price revisions
impact central Tokyo consumer price index, a leading indicator of the nationwide
CPI, due out on April 26, the day after the BOJ's latest Board policy meeting
ends, paying attention to prices for processed food and for eating out in order
to examine a strength the impact of corporate hike hikes on CPI.
--MNI Tokyo Bureau; tel: +81 90-2175-0040; email:
--MNI London Bureau; tel: +44 203-586-2225; email:
MNI London Bureau | +44 203-865-3812 |