Japan consumer prices rise for first time in 18 months on energy, material costs

Shoppers wearing protective masks choose clothes at a supermarket as the mall reopens amid the coronavirus outbreak in Chiba, Japan on May 28, 2020.
Japan's consumer inflation has been stuck at around zero as firms remain reluctant to pass on costs to households.PHOTO: REUTERS

TOKYO (REUTERS) - Japan's core consumer prices rose in September for the first time since the early stages of the coronavirus pandemic in March 2020, a sign that rising energy and raw material costs are gradually pushing up inflation.

Analysts expect rising fuel costs to accelerate consumer inflation in the coming months, though any increase will be modest compared with that of other advanced economies as sluggish wage growth weighs on consumption and keeps firms from hiking prices much.

"Looking through artificial distortions and one-off hits, we expect underlying inflation to peak just shy of plus 1 per cent early next year before falling back," said Mr Tom Learmouth, an economist at Capital Economics.

The core consumer price index, which excludes volatile fresh food prices but includes fuel costs, rose 0.1 per cent in September from a year earlier, government data showed on Friday (Oct 22), matching a median market forecast. It was unchanged in August.

The gain was driven mostly by a 7.4 per cent spike in energy costs, which was the biggest annual rise in nearly three years. Petrol costs surged 16.5 per cent in September from a year earlier.

Processed food and durable goods also saw prices perk up, though the increase was more than offset by a 44.8 per cent plunge in telecommunication fees as cellphone carriers slashed charges.

Analysts expect core consumer inflation to head towards 1 per cent in the coming months as recent rises in crude oil costs are seen pushing up electricity bills with a lag of three to five months.

But many of them doubt such cost-push inflation will lead to broader, sustainable price growth.

"The reopening of Japan's economy could lift service spending and foster price rises," said chief economist Takeshi Minami of the Norinchukin Research Institute.

"But Japanese households tend to shift to cheaper goods when the price hike continues, which, in turn, may induce a price-cut battle among companies," he said.

The data will be among factors the Bank of Japan (BOJ) will consider at next week's policy meeting, when it releases fresh quarterly growth and inflation projections.

Japan has not been immune to global commodity inflation, with wholesale prices surging at a 13-year high of 6.3 per cent in September, putting pressure on corporate profit margins and raising the risk of unwanted consumer price hikes.

But consumer inflation has been stuck at around zero as firms remain reluctant to pass on costs to households, reinforcing expectations that the BOJ's 2 per cent target will remain elusive.