Japan inflation hits 4% for the first time since 1981

The acceleration in price growth was largely due to further gains in energy and processed food costs. PHOTO: REUTERS

TOKYO – Japan’s inflation hit 4 per cent for the first time in more than four decades, accelerating to double the Bank of Japan’s (BOJ) target pace and underscoring the strength of price growth.

Consumer prices excluding fresh food rose 4 per cent in December from a year earlier, the Internal Affairs Ministry reported on Friday. The reading was the strongest since 1981. 

The acceleration in price growth was largely due to further gains in energy and processed food costs.

The data out on Friday will keep alive market expectations that the BOJ will soon end its yield control policy and allow interest rates to rise more, analysts say.

The BOJ kept monetary policy ultra-loose on Wednesday but raised its inflation forecasts in fresh quarterly projections, as companies continued to pass on higher raw material costs to households.

Many market players expect the central bank to phase out yield curve control, a policy under which it caps long-term interest rates at around zero, when dovish governor Haruhiko Kuroda’s second five-year term ends in April.

The increase in the core consumer price index (CPI), which excludes volatile fresh food but includes oil costs, matched a median market forecast and followed a 3.7 per cent annual gain seen in November.

The annual rise in core CPI thus exceeded the BOJ’s 2 per cent target for a ninth straight month.

“Inflationary pressure is heightening quite a bit, with price hikes broadening beyond those for food and fuel,” said Mr Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute.

“Companies aren’t that cautious about raising prices any more. We might see inflation stay above the BOJ’s 2 per cent target well into autumn this year,” he said.

Core-core CPI, which strips away both fresh food and energy costs, was 3 per cent higher in December than a year earlier, accelerating from a 2.8 per cent gain seen in November. REUTERS, BLOOMBERG

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