MNI POLICY: Tokyo CPI Rise Slows; BOJ To Lower Inflation Rate

By Hiroshi Inoue

     TOKYO (MNI) - Tokyo's core inflation continued to slow in September,

increasing Bank of Japan concern over the outlook for national consumer prices,

paving the way for it to revise down its inflation forecast, MNI understands.

     September's Tokyo core consumer price index, a leading indicator of the

national inflation rate, rose 0.5% on year recording a 27th straight rise, but

the pace slowed from 0.7% in August, and 0.9% in July and June.

     September's 0.5% y/y rise is the lowest level since May 2018 when it was

also up 0.5%.

     The weak core CPI was caused mainly by the fall in energy prices (-0.9% on

year in Sep vs +1.1% in Aug). Its contribution turned negative (-0.05 percentage

point) in September from positive (+0.06 percentage point) in August.

     Corporate price hikes caused by rising costs appeared to have stalled as

firms eye slowing retail sales to be led by higher prices amid sluggish wage

hikes, the BOJ views.

     The BOJ note a risk that corporate price hikes will slow due to weaker

private consumption in or after Oct 1 when the sales tax hike is increased to

10% from 8%.

     --NATIONAL RATE

     Tokyo points to lower nationwide September inflation and the data due Oct

18 could see the core number dip to 0.4% or lower vs +0.5% in August -- below

the BOJ's expectation of +0.8% in the current fiscal year made in July and

undermining its outlook.

     Processed food prices, which accounts for 15% of the total CPI, rose 1.2%

on year in September according to Tokyo data, accelerating from 1.0% in August.

     --SERVICES PRICES SLIP

     BOJ officials are worried over the inflation outlook as costs in some

services sectors, including prices for eating out, which rose 0.3% in September

vs 0.4% in August, haven't seen a pick-up in upward momentum for a while.

     Prices for eating out rose 1.1% on year in September, unchanged from

August, again indicating price hikes have paused after hitting the recent peak

of 1.3% in May.

     The BOJ board will review its medium-term outlook for economic growth and

inflation rate at the October 30-31 policy-setting meeting.

     The weakness in core CPI over the past months will likely prompt the BOJ to

lower its inflation forecast in the current fiscal year from +0.8% and the

FY2020 forecast from +1.2% made in July, respectively.

--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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