MNI POLICY: BOJ Sees Rice, Labour Driving Stronger CPI
MNI (TOKYO) - Bank of Japan officials believe rice prices and higher labour costs will drive inflation higher than their October forecast, which could boost household and business inflation expectations ahead of the quarterly Outlook Report due January, MNI understands.
Rice prices rose 60.3% y/y in October, due to elevated labour, fertilizer and transportation costs and a reduction in the number of producers.
The result has surprised BOJ officials as they had predicted softer prices over the past few months. The Bank is concerned rice prices could remain high, drive food service, processing and retail industry inflation, and feed expectations. Costs associated with rice production have held steady for decades.
As the trend is driving longer-term expectations, it will not influence the Board’s decision when it meets Dec 18-19, with the next hike more likely in 2025. The government will publish nationwide CPI data for November on Dec 20, the day after the Board’s meeting concludes.
CHANGING PRICES
Japanese companies traditionally revise prices every April and October, but more firms are moving toward flexible monthly revisions.
Food makers plan to raise about 3,933 items of food and drink prices between January and April 2025, up from 1,596 items for the same period this year, according to Teikoku Databank’s recent survey.
While Bank officials believe higher wages next year will ease the burden of inflation on households, they are concerned businesses may seek lower increases due to the uncertain economic environment.
Officials are also worried real wages will struggle to remain positive as the year-on-year rise in CPI prints stronger than anticipated, which will also weaken private consumption.