Japan core inflation hits 2.1% in September, highest this year
Core inflation excluding fresh food rose to 2.1% from 1.7% a month earlier, matching forecasts and keeping the case for another Bank of Japan rate hike alive.
At a glance
- Japan's core inflation rose to 2.1% in September, the highest this year, up from 1.7% the month before.
- Core-core inflation, the Bank of Japan's preferred gauge, was 2.4%, while headline inflation was 2.1%.
- Capital Economics expects another Bank of Japan rate hike in December, after September's move to 1.25%.
Japan's core inflation rose to 2.1% in September, the highest reading this year, as a weak yen pushed up import costs and higher energy costs fed through indirectly, government data shows. The core measure, which excludes fresh food prices, accelerated from 1.7% the previous month and came in line with the 2.1% forecast in a Reuters poll of economists.
Headline inflation was also 2.1%. "Core-core" inflation — which strips out fresh food and energy and is the Bank of Japan's preferred gauge — stood at 2.4%.
Food prices fall, goods inflation still climbs
Abhijit Surya, senior APAC economist at Capital Economics, said the acceleration was noteworthy because it happened even as fresh food inflation slowed sharply and energy prices continued to fall. Rice prices declined 20.6% year on year, but Surya noted that overall goods inflation still picked up to 2.8% from 2.6% in August, partly because the indirect effects of the energy shock kept feeding through. Inflation in "other industrial products" reached a 13-month high of 3.9%.
Government data showed price increases were driven by durable goods and public utilities charges. Services inflation edged up to 1.5% from 1.2%.
Rate hike case intact
The figures keep pressure on the Bank of Japan to raise interest rates again after it lifted them by 25 basis points in September to a three-decade high of 1.25%, continuing to unwind decades of reflationary policy. Surya said the case for further tightening "remains on solid ground" and forecast another hike in December.
Finance Minister Satsuki Katayama told parliament on Wednesday that Japan was "on the cusp of shifting to a period of sustained inflation driven by rising wages," while acknowledging that higher import costs were also contributing to price growth. Asked whether the government's tax cut plan could conflict with the central bank's efforts to combat inflation with rate hikes, he said, "I see no gap between the view of the government and that of the BOJ," according to Reuters.
On Tuesday, Japan's Lower House began debating a bill to cut the consumption tax on food to 1% from 8% for two years, public broadcaster NHK reported. The bill also includes provisions for support payments to workers based on income levels.
Japan's oil import costs have risen as it buys energy from more expensive U.S. sources and moves away from Middle Eastern suppliers because of the Iranian conflict, while weakness in the yen also makes oil more expensive.
Source: CNBC Top News.
Questions and answers
- Why is Japan's core inflation rising?
- A weak yen has pushed up import costs, and higher energy costs are feeding through indirectly. Government data showed durable goods and public utilities charges drove the increases.
- Will the Bank of Japan raise interest rates again?
- Capital Economics economist Abhijit Surya said the case for further tightening remains on solid ground and forecast another hike in December, after the BOJ raised rates to 1.25% in September.
- What was Japan's inflation rate in September?
- Core inflation, which excludes fresh food, was 2.1%, up from 1.7% a month earlier and in line with the 2.1% forecast in a Reuters poll. Headline inflation was also 2.1%.
