TOKYO- Japan’s core consumer inflation slowed for a third straight month in January but beat forecasts and held at the central bank’s 2 percent target, keeping alive expectations it will end negative interest rates by April.
The 2.0 percent gain in the core consumer prices index (CPI) was slower than the 2.3 percent increase in December, internal affairs and communications ministry data showed on Tuesday, underscoring views waning cost-push inflation from commodity imports could ease the pain of higher living costs.
However, the gain beat median market forecasts for a 1.8 percent rise, reaffirming expectations hefty pay hikes will be offered by big firms at labor-management wage talks on March 13 that would pave the way for the Bank of Japan (BOJ) to end negative interest rates in March or April.
“The January CPI leaves open the possibility of the BOJ hiking its policy rate at the March meeting if preliminary Shunto results due a few days before the meeting are encouraging,” said Marcel Thieliant at Capital Economics, referring to Japanese name for the wage talks.
“We still consider an April hike more likely,” Thieliant added. “For one thing, inflation will jump well above 2 percent in February as base effects from the launch of energy subsidies a year ago kick in, which would allow the Bank to tell a more compelling story that inflation remains strong,” he added.
Japan’s core consumer price index includes oil products but excludes fresh food prices.
The slowdown was due in part to a big drop in energy costs, reflecting the base effect of last year’s sharp rise and government subsidies to curb gasoline and utility bills, in a sign of waning cost-push pressure that had kept core inflation at or above the BOJ’s 2 percent target since April 2022.
Going forward, the key is whether wage hikes beat inflation enough to give households purchasing power, so companies can continue to pass on costs and keep inflation durably at the BOJ’s 2 percent target, analysts say.
The so-called “core core” index that strips away both fresh food and energy prices, closely watched by the BOJ as a narrow gauge of the broader price trend, rose 3.5 percent year-on-year in January, following a 3.7 percent rise in December. – Reuters