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REPEAT: MNI: BOJ Encouraged by April CPI Boost, But Still Slow

MNI (London)
Repeats Story Initially Transmitted at 06:20 GMT May 24/02:20 EST May 24
By Hiroshi Inoue
     TOKYO (MNI) - The Bank of Japan sees encouraging signs in April's
acceleration in the nationwide consumer price index, although it remains
cautious as the speed of the pick-up is sluggish and the Philips Curve still
appears somewhat detached, despite a widening output gap, MNI understands.
     BOJ officials saw a spill over from recent corporate price hikes into the
nationwide inflation rate through April, with the underlying trend also
remaining solid, although higher costs in some service sectors weren't passed on
to the consumer. They remain concerned that the pace of gains isn't
accelerating, appearing to underperform Japan's output gap.
     As supply across the economy tightens and demand firms, Japan's estimated
positive output gap widened to 2.23 percentage points in Q4 2018, up from Q3's
1.26 percentage points.
     It was the ninth straight quarter with a positive reading and the BOJ
expects it to flow through to increased upward pressure on both consumer prices
and inflation expectations, albeit with a lag of a few quarters.
     The influence of the output gap on Japan's inflation rate, in part
recognized in the Phillips Curve, continues to show a relatively weak
correlation, with BOJ officials not seeing an expected upward shift or
steepening, in part due to a rise in inflation expectations.
     --PRICE RISES SPREADING
     Nationwide core consumer price index rose 0.9% in April for a 28th straight
gain, accelerating from March's 0.8%, although the gain was smaller than that
suggested by this month's Tokyo CPI (+1.3%vs +1.1% in March).
     Goods prices excluding volatile fresh food prices picked up to 1.4% on
year, with the positive contribution rising to 0.20 percentage point in April
from 0.17 pp in March.
     Prices for processed foods, which accounts for 15% of the total CPI that
BOJ officials are focused on, rose 0.8% on year in April, up from +0.6% in
March, indicating that corporate price hikes are gradually spreading.
     Although service prices accelerated in April, prices for eating out were
unchanged at +1.1% y/, indicating that upward pressure from the sector might
have peaked.
--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
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com
MNI London Bureau | +44 203-865-3812 | les.commons@marketnews.com

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