TOKYO • Japan's key consumer prices continued to rise at the same pace last month, hovering at a two-year low amid increasing speculation that the Bank of Japan (BOJ) may ramp up its stimulus as early as next month.
Prices excluding that for fresh food rose 0.6 per cent last month from a year earlier, matching economists' median estimate, according to official data out yesterday. The downward impact of sharper falls in petrol costs was cancelled out by firmer cellphone handset prices.
A stubbornly low inflation rate makes it harder for the BOJ to argue that it is slowly but steadily making progress towards its 2 per cent inflation target. Price growth is expected to slow further in the coming months as a result of lower oil prices and government measures to make pre-school education free.
Some BOJ watchers see a growing chance of Japan's central bank ramping up its stimulus measures as early as next month, given a gloomier economic outlook that is likely to prompt US Federal Reserve and European Central Bank action - moves that could strengthen the yen.
"At this moment, a major concern for the central bank in Japan is the exchange rate. If the BOJ admits it is no longer able to achieve the 2 per cent inflation target, that might trigger the yen's appreciation," Ms Sayuri Shirai, a visiting researcher at the Asian Development Bank Institute and a former BOJ board member, told Bloomberg TV.
Still, Japanese Prime Minister Shinzo Abe's government appears relatively comfortable with recent tepid price growth, given its concerns that a sales tax increase in October will squeeze household budgets over the following months.
"Looking forward, inflation is likely to ease towards the fourth quarter, excluding effects of a sales tax hike in October. We expect core inflation - the BOJ's main target - to remain around 0.5 per cent in the fourth quarter," said Bloomberg economist Yuki Masujima.
Overall, Japan's consumer prices rose 0.5 per cent last month, weaker than economists' median forecast of 0.6 per cent and the June reading of 0.7 per cent. Stripping out energy and fresh food, consumer prices climbed 0.6 per cent, better than a 0.5 per cent estimate.
Petrol prices fell 4.3 per cent, pulling down the overall price index by 0.1 percentage point. While mobile phone fees also continued to weigh on inflation, handset prices did not drag heavily as in previous months.