MNI INSIGHT: BOJ: Tokyo CPI Up on Volatile Items; Trend Slow

--Japanese Firms Gradually Passing Higher Costs Onto Consumers

By Hiroshi Inoue

     TOKYO (MNI) - Bank of Japan officials remain cautious about the inflation

outlook as an uptick in the latest Tokyo consumer price data was led by a

temporary surge in the costs for hotels and overseas holiday tours, MNI

understands.

     Chinese tourists rushed to Japan during the Lunar New Year holidays in

February, pushing up the prices for accommodations here, while strong Japanese

demand for traveling to South Korea for the PyeongChang Winter Olympics led to

higher prices for overseas tours.

     The BOJ's view is unchanged that inflation is slow to respond to a

continued domestic economic recovery, but at the same time, BOJ officials still

believe that upward pressure on consumer prices will pick up later this year

when more firms raise retail prices to pass on higher materials and labor costs.

     In central Tokyo, the core CPI excluding fresh food prices rose 0.9% on

year in February for the eighth straight year-on-year rise, accelerating from

+0.7% in January and coming in higher than the MNI median economist forecast of

+0.8%, government data released Friday showed.

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

core national CPI is expected to show a higher year-on-year rise in February

(due on March 23), up from +0.7% in January.

     --HOLIDAY PRICES 

     The year-on-year increase in the Toyo CPI was mainly led by higher prices

for accommodations (+5.2% in February vs. +1.0% in January) and those for

overseas holiday tours (+8.8% in February vs. +1.9% in January).

     On the other hand, the prices for all goods rose 2.7% on year in February,

with the pace of increase decelerating from +2.9% in January, as the recent

surge in fresh vegetable prices had eased in February.

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

February, with the pace of increase unchanged from January.

     The prices for durable goods gained 1.3% on year in February, with the pace

of increase accelerating from +0.5% in January, but a government official said

this was because the prices for mobile phones rebounded from their sharp drop

seen a year earlier.

     All of these factors indicate that companies are not yet fully passing

higher costs onto consumers, BOJ officials view.

     --SERVICE PRICES SLOW

     The weakness remains in service prices, which account for just over a half

of the total CPI basket.

     The overall service prices rose 0.4% on year in February, accelerating from

+0.1% in January, but this was due to a temporary jump in the prices for hotels

and overseas tours.

     In Tokyo, the core-core CPI excluding fresh food and energy -- a key

indicator of the underlying trend of inflation -- rose 0.5% on year in February,

up slightly from +0.4% in January, but it is still far from the BOJ's 2%

inflation target.

     --UNEMPLOYMENT VS CPI

     In other data released Friday, the unemployment rate fell to a nearly

25-year low of 2.4% in January from 2.7% in December. It was the lowest level

since April 1993, when it was at 2.3%.

     Some people stopped looking for openings after finding work amid a rising

job offer rate while others might have suspended job hunting during snow storms

in late January, according to government analysis.

     BOJ officials believe the labor market did not become much tighter in

January, compared with December, which means the upward price pressure from

labor shortages remains gradual.

--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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