Japan’s Inflation Stalls at 1% as Risks to Price Gains Gather

(Bloomberg) -- Slow but steady improvement in Japan’s core inflation gauge has come to a halt as a host of forces gather that could see price gains begin to slow.

Consumer prices excluding fresh food rose 1 percent in October from a year earlier, as expected by economists. That’s just half way to the Bank of Japan’s 2 percent target with the prospect of falling energy costs and lower charges from mobile-phone carriers pointing to weaker price growth ahead.

Japan’s Inflation Stalls at 1% as Risks to Price Gains Gather

Key Insights

  • Stripping out energy as well as fresh food, prices climbed 0.4 percent. Declines in oil prices threaten to weigh on inflation in the year ahead.
  • Telecommunications companies have begun heeding aggressive calls from the government to lower mobile-phone charges and this trend is likely to strengthen next year.
  • While the central bank forecasts inflation of 1.4 percent next year and Governor Haruhiko Kuroda told Japan’s parliament this week that momentum toward the price goal has been maintained, this view is hotly contested.
  • Some private-sector economists estimate sliding oil prices will halve Japan’s inflation rate over the next six months. Cheaper mobile-phone bills and free nursery education could even push it below zero, they say.

What Our Economist Says...

“There’s little reason to expect it to pick up much from here -- especially with oil prices now in retreat,” according to Bloomberg Economics’ Yuki Masujima. “We think the Bank of Japan will have to keep up its stimulus, while keeping a wary eye on the financial imbalances it’s generating.”

-- For more, read Masujima’s JAPAN REACT.

Get More

  • “Service related prices just aren’t rising and with crude oil falling, energy will likely work against inflation going forward,” said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo.
  • Overall prices gained 1.4 percent, also matching economists’ projections. Much of this was driven by higher fresh food prices after a series of typhoons hurt agricultural output and disrupted supply chains.
  • Energy prices rose 8.9 percent from a year earlier, contributing about two-thirds of the overall movement in consumer prices in October.
  • Link to data release.

©2018 Bloomberg L.P.