Tokyo core CPI rises to 22-yr high after Japan's April tax hike

TOKYO (Reuters) - Core consumer prices in Tokyo, a leading indicator of nationwide inflation, rose 2.7 per cent in April from a year earlier to mark the biggest gain in more than two decades, offering the first glimpse on how Japan's sales tax hike is pushing up prices across the board.

Nationwide core consumer inflation also matched a five-year high of 1.3 per cent in March from a year ago, government data showed on Friday, and is expected to track the Tokyo index's spike next month.

Stripping off the impact of the April 1 tax hike, Tokyo core consumer inflation - available a month earlier than nationwide figures - rose 1.0 per cent year-on-year in April, indicating that Japan is still some way off the central bank's 2 per cent price target.

"Considering that the sales tax hike boosted prices by 1.7 percentage points, the Tokyo core CPI is steady with the March data and this shows that companies are not fully reflecting the tax hike in prices," said Junko Nishioka, chief economist at RBS Securities in Tokyo.

"That said, there is no change in the gradual increase in prices and today's data will not lead the Bank of Japan to change its price forecasts."

The Bank of Japan has argued that the world's third-biggest economy is making steady progress toward achieving its 2 per cent inflation target by around mid-2015. Comments from BOJ officials in recent weeks have sought to mollify concerns about the economic recovery after a series of soft data suggested a loss of momentum.

The central bank has dismissed speculation it will be forced to add to last April's massive stimulus to safeguard the fragile recovery.

But the erosion of consumer spending power due to the sales tax increase - to 8 per cent from 5 per cent - underscores the need for long-stagnant wages to catch up with inflation to underpin consumption and help drive the economic recovery.

Analysts polled by Reuters had expected Tokyo core consumer inflation to hit 2.8 per cent in April, and nationwide consumer prices to rise 1.4 per cent in March from a year earlier.

The BOJ estimates that the sales tax rise will add 1.7 percentage points to Japan's annual consumer inflation in April and 2.0 points from the following month. The government ministry issuing CPI data does not crunch out such estimates.