MNI POLICY: Tokyo CPI Rise Unchanged; BOJ Caution Over Outlook

By Hiroshi Inoue

     TOKYO (MNI) - The year-on-year rise in Tokyo's core October inflation rate

was unchanged from September as the higher prices caused by the sales tax hike

was offset by a drop in energy costs and the Bank of Japan remains watchful on

the inflation outlook, MNI understands.

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

national inflation rate, rose 0.5% on year recording a 28th straight rise, with

the pace unchanged from September's gain, which was the lowest level since May

2018 when it was also up 0.5%.

     The October CPI was mainly boosted by higher goods prices excluding

perishables (+1.7% on year in Oct. vs. +0.9% in Sept.) but the gain was erased

by lower energy prices and lower prices for pre-school fees.  

     The October core CPI was weighed by the drop in energy prices (-2.1% on

year in Oct. vs -0.9% in Sept.) Its negative contribution widened to -0.11

percentage point in October from -0.05 percentage point in September.

     Prices for pre-school fees fell 88.3% on year in October vs. +1.5% in

September.

     Tokyo points to weak nationwide October inflation rate due Nov. 22 could

see the core number rise unchanged at +0.3% in September, which was the lowest

level since April 2017 when it was also up 0.3%. 

     -HIGHER FOOD, SERVICES PRICES

     Processed food prices, which accounts for 15% of the total CPI, rose 1.3%

on year in October according to Tokyo data, accelerating from 1.2% in September.

Service prices, including prices for eating out, rose 1.0% in October vs. 0.3%

in September. Prices for eating out rose 3.2% on year in October, up from +1.1%

in September, indicating that restaurants raised retail prices on Oct. 1.

     But BOJ officials are concerned over the risk that corporate price hikes

may slow due to weaker private consumption after the sales tax hike, although

their latest analysis suggests that corporate moves are mixed.

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

inflation rate at the two-day policy-setting meeting starting on Wednesday.

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 +1.0% and the

FY2020 forecast from +1.3% 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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