Japan April consumer inflation beats BOJ target for 1st time in 7 years (updated)

CPI SA

20/05/2022 24:48

* April core CPI up 2.1%, above BOJ's 2% target
    * Core CPI jumps at fastest rate since March 2015
    * Gain points to inflationary pressures from energy, food
costs

 (Adds analyst quotes, details)
    By Daniel Leussink
    TOKYO, May 20 (Reuters) - Japan's core consumer inflation in
April exceeded a central bank target of 2% for the first time in
seven years, but only thanks to rising import costs, not the
strong domestic demand that the central bank has been trying to
kindle.
    Still, the 2.1% rise in the core consumer price index (CPI)
announced on Friday reinforces market scepticism that the Bank
of Japan (BOJ) will maintain its ultra-loose monetary policy,
especially since households are suffering rising costs without
substantial wage growth.
    The core CPI data excludes prices of volatile fresh food but
not energy, which has galloped higher because of the war in
Ukraine. So have costs of other commodities, which affect prices
of non-fresh food, another driver of the lift in inflation.
    Before April, the index had not risen so fast since 2015 or,
excluding a mid-decade period affected by a hike in sales tax,
not since 2008.
    For years, inflation has generally struggled to reach even
1%, despite efforts by the BOJ to get it to 2.0%.
    But analysts said that finally beating the target now was no
great cause for celebration, because costs of foreign energy and
other commodities had driven the upward shift. 
    "The current price rises stem from higher import costs. If
you look at the overall situation, this means inflation is a
burden on companies and households," said Taro Saito, executive
research fellow at NLI Research Institute.
    "If wages rose, households could hope for higher real
incomes, but they aren't rising, so households are being
impacted negatively."
    The BOJ set its 2% inflation target in 2013, during the
first year of the tenure of its current governor, Haruhiko
Kuroda. He has repeatedly said the central bank will be in no
hurry to end its stimulus efforts, because any cost-push rise in
inflation would be temporary.
    So the central bank is keeping monetary policy extremely
loose, looking for inflation holding stably at 2% and supported
by strong wage growth. It is taking that stance even as other
major central banks are tightening policy.
    
    SLUGGISH WAGES
    Japanese wages have barely budged relative to the cost of
living since the 1990s and remain one of the most pressing
problems for the world's third-largest economy, fuelling
households' propensity to save rather than spend.
    The latest wage data for March showed real wages shrank for
the first time in three months as inflation outstripped a modest
1.0% year-on-year growth in total cash earnings.  urn:newsml:reuters.com:*:nT9N2WH01N
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    The April inflation rate announced by the government matched
the median forecast in a Reuters poll. It was much stronger than
the 0.8% annual rise seen March, but that earlier figure was
more strongly affected by a big drop in mobile phone fees that
is fading out of the calculation.
    Mobile phone fees pulled overall CPI down 0.38 percentage
pointe in April, compared with 1.42 percentage points in March.
    Strong rises in import costs meant money was flowing abroad,
said Atsushi Takeda, chief economist at Itochu Economic Research
Institute.
    "There's no mistake that it's economically bad," he said.
    Inflation may now be high by Japanese standards, but it
remains low compared with what is seen elsewhere, because
Japanese firms cannot easily raise prices when wage growth is
sluggish. U.S. consumer prices rose 8.3% in the 12 months to
April.
    In a sign cost-push inflation is likely to keep pressuring
Japanese households, data due on May 27 is expected to show
Tokyo-area consumer prices were 2.0% higher in May than a year
earlier, according to a Reuters poll of 17 economists.

 (Reporting by Daniel Leussink; Editing by Stephen Coates and
Bradley Perrett)
 ((daniel.leussink@thomsonreuters.com; Twitter:
@danielleussink;))