Japan Inflation Hits 31-Year High Ahead of BOJ Meeting

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(Bloomberg) — Japan’s inflation quickened to the fastest pace since 1991 excluding tax-hike impacts, adding to the challenges for the central bank this week to explain the need for its ongoing monetary stimulus. 

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Consumer prices excluding fresh food rose 2.8% in August from a year ago, the internal affairs ministry reported Tuesday. Analysts had forecast a 2.7% gain. It was the strongest reading in more than three decades, excluding the impact of sales tax increases, and far above the Bank of Japan’s 2% goal.

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Higher electricity prices contributed to the faster pace of inflation, while receding impact from mobile phone fee price cuts last year also added to the price gains.

Despite the gains the report is unlikely to prompt the BOJ to change its policy on Thursday because Governor Haruhiko Kuroda has repeatedly said the bank will keep interest rates at rock-bottom levels until inflation becomes sustainable. 

Kuroda argues that current price gains driven by a global commodity boom can harm consumers and the economy while wage growth remains limited, so the BOJ must maintain its support for growth. 

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But as inflation spreads beyond energy items, pressure is mounting on the bank to justify the need for its ongoing stimulus. Consumer prices excluding fresh food and energy gained 1.6%. 

The prices of 6,532 food items are expected to rise in October, according to a Teikoku Databank survey. That compares with 2,493 items in August and 2,424 items in September.  

Analysts are raising their forecasts after the recent rapid yen slump. Takeshi Minami, chief economist at Norinchukin Research Institute, expects recent yen moves to keep inflation elevated for longer than currently expected.

What Bloomberg Economics Says…

“Another above-target core CPI reading is unlikely to prompt the BOJ to shift policy yet. The central bank is looking for signs of faster wage growth that would help sustain inflation before it reduces stimulus.”

—The Asia economist team

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(Updates with more details from the report)

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