(Bloomberg) — Tokyo inflation accelerated this month as the government reduced energy subsidies, while the data overall indicated the country’s price growth trend remains broadly in line with the Bank of Japan’s projection.
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Consumer prices excluding fresh food in the capital climbed 2.2% from a year earlier in November, picking up from 1.8%, according to the ministry of internal affairs Friday. The result was stronger than the median economist forecast of 2%. Overall inflation sped up to 2.6%, as food prices also pushed up the gauge. The yen gained against the dollar following the report.
The leading indicator for the nationwide trend is likely to keep market participants speculating over a BOJ rate hike next month, by suggesting Japan’s inflation momentum is still in place. Market expectations for the move have roughly doubled this month as Governor Kazuo Ueda has repeatedly said borrowing costs will be raised if the economy performs in line with the central bank’s view.
Separate reports on Friday showed the job market remained relatively tight, with the jobs to applicants ratio ticking up to 1.25, and the jobless rate rising slightly to 2.5%.
Friday’s Tokyo CPI data is the last government inflation report before the BOJ makes a decision on its benchmark rate on Dec. 19. Last week Ueda said it’s not possible to predict the outcome of the meeting, hinting that the next meeting will involve a live discussion over whether to raise interest rates.
Former Prime Minister Fumio Kishida decided to significantly reduce energy subsidies from this month, as he looked to phase out what was supposed to be a temporary measure. Still, Kishida’s successor Shigeru Ishiba has decided to reintroduce the measure from January. The impacts from subsidies tend to be reflected in inflation data with a lag.
What Bloomberg Economics Says…
“The CPI report will probably strengthen the BOJ’s conviction that inflation momentum is building, with its 2% target looking increasing secure.”
Taro Kimura, economist
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The BOJ’s 0.25% policy rate is expected to change soon. More than 80% of economists surveyed by Bloomberg forecast another hike by January. The Tokyo CPI figures follow a range of recent economic data including GDP that have shown the economy is in a moderate recovery.
Japan’s national inflation has stayed at or above BOJ’s 2% target for more than 30 months, denting purchasing power among consumers.
