By Leika Kihara
TOKYO- Japan’s core inflation in October held above the central bank’s 2 percent target and a key index stripping away the effect of fuel accelerated, data showed, keeping pressure on the central bank to raise its still-low interest rates.
The data also showed continued gains in service prices, which are closely watched by the Bank of Japan (BOJ) for clues on whether firms were passing on rising labour costs, suggesting conditions for further rate hikes were falling into place.
The readings will be among factors the BOJ will discuss at its next policy meeting on Dec. 18-19, when some analysts expect a hike in short-term rates to 0.5 percent from 0.25 percent as the central bank unwinds years of ultra-low rates.
The yen’s renewed weakness, which heightens inflationary pressure by pushing up the cost of imports, has also led some market players to bet on a December rate hike.
“Although evidence of demand-driven price pressure remains scarce, the renewed yen depreciation over the past two months means upward pressure on prices will persist,” said Stefan Angrick, senior economist at Moody’s Analytics, who expects the BOJ to hike rates in December rather than wait until January.
A Reuters poll taken on Nov. 13-21 showed 56 percent of economists expect the BOJ to raise rates again in December, up from 49 percent in last month’s survey.
The nationwide core consumer price index, which includes oil products but excludes fresh food prices, rose 2.3 percent in October from a year earlier, government data showed, slightly exceeding a median market forecast for a 2.2 percent gain.
It slowed from a 2.4 percent increase in September, mostly due to the base effect of last year’s government decision to halve fuel subsidies that bumped up prices from October 2023.
A separate index that strips away the effect of volatile fresh food and fuel, scrutinised by the BOJ as a better gauge of demand-driven inflation, rose 2.3 percent in October from a year earlier, accelerating from a 2.1 percent gain in September.
Services inflation also perked up to 1.5 percent in October from 1.3 percent in the previous month, suggesting rising wages were prodding more firms to hike prices.
“All told though, the renewed strengthening of underlying inflation coupled with the recent rebound in consumer spending and the renewed weakening of the yen strengthen the case for another BOJ rate hike next month,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics.
The CPI data has drawn strong attention as many Japanese firms typically charge prices for services biannually in April, which is the start of the fiscal year, and October. – Reuters
