Japan Price Gains Buoyed by Energy Offer BOJ Little Comfort

(Bloomberg) -- Japan’s core inflation accelerated for a fourth month in January, but with the gain boosted by gasoline costs the data does little to bolster a case that consumer-led price momentum is picking up as the Bank of Japan hopes.

Consumer prices excluding fresh food rose 0.8% from a year earlier, picking up speed from a 0.7% gain in December, the ministry of internal affairs reported Friday. The result matched economists’ median forecast.

While inflation has picked up since a 2-year low in summer, gains have come largely from changes in energy prices, a function of global commodity markets rather than consumer demand and the jolt from a sales tax hike. With the economy forecast to fall into recession this quarter amid the coronavirus epidemic, the trend is likely to weaken going ahead.

• After years of massive monetary easing, inflation still runs far below the BOJ’s 2% target. Friday’s data provides little evidence of the virtuous cycle the BOJ is hoping for, in which better wages and more consumer spending fuel stronger growth in prices and the economy.
• Yuichi Kodama, an economist at Meiji Yasuda Life Insurance, said the price trend looks weaker after stripping out energy costs and also the impact of a recent 2-percentage point hike in Japan’s sales tax. Nevertheless, he said the BOJ is likely to stand pat for the time being because the yen isn’t strengthening. “What the BOJ is watching is FX rates,” he said.
• October’s sales tax hike has squeezed household finances and hit consumer demand, adding a headwind for inflation going forward. BOJ Governor Haruhiko Kuroda has said he hopes companies will raise wages in the annual spring wage negotiations.

What Bloomberg’s Economist Says

Lower accommodation and durable goods prices weighed on inflation. “It’s hard to be certain, but that may partly reflect hotel reservation cancellations by Chinese tourists affected by measures to contain the coronavirus. The hit to sales from the sales-tax hike explains the weakness in durable goods prices.”

--Yuki Masujima, economist

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• A 6.3% gain in gasoline prices pushed up overall inflation by a little more than 0.1 percentage point, outweighing continued falls in electricity prices.
• Inflation excluding fresh food and energy increased 0.8% from a year earlier, slowing from 0.9% in December. The result matched the estimate from economists.
• Overall inflation gained 0.7%, decelerating from 0.8%.
• Removing the impact of the sales tax and free pre-school education, core inflation rose 0.4%, matching the pace of the previous month.

--With assistance from Tomoko Sato.

To contact the reporter on this story: Yoshiaki Nohara in Tokyo at ynohara1@bloomberg.net

To contact the editors responsible for this story: Paul Jackson at pjackson53@bloomberg.net, Alexandra Veroude, Jason Clenfield

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