TOKYO – Japan’s core consumer price inflation in April surpassed the central bank’s target of 2% for the first time in seven years, but thanks to rising import spending alone, the central bank is not trying to ignite strong domestic demand.
Nevertheless, the 2.1% rise in the key consumer price index (CPI) announced on Friday reinforces market skepticism that the Bank of Japan (BOJ) will maintain its ultra-loose monetary policy, especially as households continue to face rising costs without significant wage increases.
The original CPI data excluded volatile fresh food prices but not energy, which has been higher since the war in Ukraine. So there are costs of other products, which affect the price of non-fresh food, another driver of the lift in inflation.
Prior to April, the index had not grown so rapidly since 2015 or, not since 2008, with the exception of a mid-decade affected by sales tax increases.
Over the years, despite the BOJ’s efforts to keep inflation at 2.0%, it has generally struggled to reach 1%.
But analysts say losing the target in the end was no longer a big reason to celebrate now, as the prices of foreign energy and other commodities have driven upward changes.
“Current prices have risen due to high import costs. If you look at the overall situation, it means a burden on inflation companies and families, “said Taro Saito, an executive research fellow at the NLI Research Institute.
“As wages rise, families can expect higher real incomes, but they are not rising, so families are being negatively affected.”
The BOJ set its 2% inflation target in 2013, the first year of the term of its current governor, Haruhiko Kuroda. He has repeatedly said that the central bank will not be in a hurry to end its stimulus efforts, as any increase in inflation will be temporary.
So the central bank is keeping monetary policy very loose, supported by keeping inflation stable at 2% and strong wage growth. It is taking that position even as other major central banks tighten policy.
Since the 1990s, Japanese wages have fallen sharply compared to living expenses and remain one of the most pressing problems for the world’s third-largest economy, increasing the tendency to save rather than spend on households.
The latest wage data for March shows that real wages have shrunk for the first time in three months as inflation surpasses the 1.0% annual growth rate in total cash earnings.
The April inflation rate matched the moderate forecast in a Reuters poll released by the government. This was much stronger than the 0.8% annual growth seen in March, but the previous number was strongly influenced by a large drop in mobile phone fees that went out of the calculation.
The overall CPI for mobile phone fees fell 0.38 percent in April, compared with 1.42 percentage points in March.
Atsushi Takeda, chief economist at the Itochu Economic Research Institute, said the strong increase in import costs meant money was flowing abroad.
“There’s nothing wrong with that,” he said.
According to Japanese standards, inflation may be higher now, but lower than anywhere else, because Japanese companies will not be able to raise prices easily if wage growth slows. In the 12 months to April, US consumer prices rose 8.3%.
According to a Reuters poll of 17 economists, as a sign that cost-pushing inflation could put pressure on Japanese households, data expected on May 27 is expected to show Tokyo-area consumer prices 2.0% higher than a year ago. (Reporting by Daniel Lewisink; Editing by Stephen Coates and Bradley Parrett)