Tiny Rise in Japan’s Inflation Leaves It Well Below BOJ’s Goal

(Bloomberg) -- Japan’s key inflation gauge inched higher in March before an expected downturn in price pressures later this year adds to the challenges facing the central bank.

Consumer prices excluding fresh food rose 0.8 percent in March from a year earlier, compared with a 0.7 percent median forecast of economists, data from the ministry of internal affairs showed Friday. Higher oil prices and a jump in air conditioner prices contributed to the gain.

Key Insights

• Friday’s data provide the last key economic indicator before the Bank of Japan’s board meets April 24-25 to consider policy and quarterly forecasts for growth and inflation. The BOJ is widely expected to keep policy unchanged but most analysts see a chance of downgrades to its projections for the economy and prices.
• Electricity fees lagging behind oil prices are likely to limit the contribution of energy to inflation over the coming months.
• Inflation is likely to slow as free education for younger children takes effect in October and as mobile phone carriers lower fees.
• NTT Docomo Inc. this week unveiled a plan to cut prices as much as 40 percent. BNP Paribas SA estimates lower charges will trim about 0.3 percentage point from consumer prices excluding fresh food.
• Senior lawmakers including the finance minister have signaled that they don’t think the BOJ has to push for 2 percent inflation at all costs and that it can be more flexible in pursuing the goal.

What Bloomberg’s Economist Says

“A steady, low reading on a Japanese inflation gauge that excludes fresh food and energy in March shows underlying consumer price pressures remain weak, even as headline inflation picked up.”

--Yuki Masujima, Japan economist
Click here to view the research.

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• Overall, Japan’s consumer prices rose 0.5 percent in March, matching economists’ forecast.
• Stripping out energy and fresh food, consumer prices climbed 0.4 percent, also in line with a gain predicted by analysts.
• A 10.2% jump in air conditioner prices was the biggest gain in over four-and-a-half years.

--With assistance from Shiho Takezawa and Masahiro Hidaka.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net, Paul Jackson, Henry Hoenig

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