Japan's consumer prices up, driven by energy costs

TOKYO • Japan's core consumer prices rose 0.3 per cent last month from a year earlier to mark a fourth straight month of increases, offering policymakers hope that a steady economic recovery will convince consumers to start spending again.

But the increase was due largely to the fading effect of last year's energy price falls, underscoring the challenges the Bank of Japan (BOJ) still faces after years of heavy monetary stimulus to reach its ambitious 2 per cent inflation target.

When stripping away the effect of volatile fresh food and energy costs, consumer prices were unchanged last month from a year ago, in a sign that many companies remain wary of hiking prices for fear of scaring away cost-sensitive households.

"Retailers are struggling to raise prices because wages and household income are not increasing much. They thus try to trim costs by keeping wages low," said Norinchukin Research Institute chief economist Takeshi Minami.

"The positive economic cycle is not kicking in yet," he said, adding that the BOJ will likely maintain its ultra-loose monetary policy for the time being.

With the economy showing signs of life, analysts now expect the BOJ's next move to be a reduction, rather than an expansion, of its monetary stimulus. But BOJ officials have stressed that any reduction in stimulus would be some time away, pointing to the fact that inflation remains distant from their target.

The rise in the core consumer price index, which includes oil products but excludes fresh food prices, followed a 0.2 per cent increase in March, Internal Affairs Ministry data showed yesterday.

"The main inflation gauges all edged up in April and should climb a bit further in coming months," said Capital Economics senior Japan economist Marcel Thieliant. "But with the boost from higher energy prices set to fizzle out in the second half of the year, inflation will settle at levels well below the BOJ's 2 per cent target."

Japan's economy grew in the first quarter at its fastest pace in a year to mark the longest period of expansion in a decade, thanks to robust exports and a helpful boost from private consumption.

Nonetheless, weak household spending and poor corporate pricing power have kept inflation around zero for almost two years, forcing the BOJ to revamp its policy framework to one better suited for a long-term battle against deflation.


A version of this article appeared in the print edition of The Straits Times on May 27, 2017, with the headline 'Japan's consumer prices up, driven by energy costs'. Print Edition | Subscribe