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Free AccessREPEAT: MNI INSIGHT: BOJ: CPI Slow But Underlying Prices Up
--BOJ Watching Near-Term Risk of Higher Yen, Lower Oil Prices
By Hiroshi Inoue
TOKYO (MNI) - Japanese prices are slow to respond to the sustained, modest
economic growth but Bank of Japan officials expect steadily rising costs amid
labor shortages to exert more upward pressure on consumer prices in coming
months, MNI understands.
BOJ officials believe the momentum toward achieving the 2% inflation target
is maintained as record high corporate profits and a gradual pickup in wages are
leading to increased investment and consumption.
The national average core consumer price index (excluding fresh food) rose
0.9% on year in January. The pace of increase was unchanged from 0.9% in
December after it rose to 0.9% in November from 0.8% in October.
The 13th straight year-on-year rise in January was led by gradual gains in
goods prices while service prices remained weak, largely due to slow wage hikes
and regulated healthcare costs.
The core-core CPI (excluding fresh food and energy) rose just 0.4% on year
in January after rising 0.3% in December and November, indicating that it takes
considerable time for the underlying inflation trend to pick up and that the
recent increase has relied heavily on higher fuel and utility costs.
--NEAR-TERM DOWNSIDE RISK
BOJ officials expect the core CPI to gradually rise but they are vigilant
against the near-term downward move that may be caused by the yen appreciation
this year, which will lower import costs, as well as the recent slide in crude
oil prices.
The focus is on whether the core CPI will continue rising above the annual
rate of 1.0% in fiscal 2018 starting in April, when some firms are expected to
raise retail prices, reflecting higher raw material and labor costs. Modest base
wage hikes are also expected in the next fiscal year.
--SOLID GOODS PRICES
Goods prices excluding volatile fresh food prices rose 1.7% on year in
January, with the pace of increase slowing from +1.8% in December. The pace of
increase in overall goods prices rose 2.7% in January, up sharply from the 2.0%
rise in December in light of continued high prices for fresh vegetable and fish.
BOJ economists believe their cost-push indicator -- aimed at gauging the
pressure from costs that have not been passed on to prices -- has been rising
gradually since the bank first released its concept in on Nov. 1. At the time,
the BOJ estimated the cost-push indicator stood at around 0.2% in the
July-September quarter, indicating consumer prices were expected to rise by 0.5
percentage point in about six months.
The for processed food (canned food, bread, snacks, beverages, etc.), which
accounts for 15% of the total CPI, rose 1.2% on year in January after rising
1.0% in December.
--WEAK SERVICE PRICES
By contrast, the weakness remains in service prices, which account for just
over a half of the total CPI basket.
The prices for services ranging from rents and restaurants to medicine and
communications rose just 0.1% in January after rising at the same pace in
December, indicating companies are resisting price hikes amid tough competition
by investing in technology and curtailing business hours to cut costs.
BOJ economists are also monitoring the total CPI, which they believe will
have a large impact on inflation expectations among firms and households because
people pay close attention to the prices of daily necessities.
The total CPI rose 1.4% on year in January, with the pace of increase
accelerating sharply from the 1.0% rise in December, but the rise was mainly
caused by higher perishable goods, which surged 8.8% on year in January.
--MNI Tokyo Bureau; tel: +81 90-4670-5309; email: max.sato@marketnews.com
To read the full story
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Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.