Japan’s core consumer prices increased for the fifth consecutive month in January, but at a slower rate than the previous month. This increases the chances that Japan’s central bank will not raise interest rates as quickly as other countries.
Due to rising energy prices, consumer inflation will likely rise in the next months. Last year’s reductions in mobile phone fees are expected to be dropped out of calculations and no longer cause a price drop.
According to government data, 0.2% of the core consumer price index (CPI) increased in January compared with a year ago, according to Friday’s data.
This was less than the 0.3% increase in a Reuters poll median forecast and a 0.5% increase in the past two months.
Taro Saito (executive research fellow at NLI Research Institute) stated that “Consumer inflation” will increase from next month due to higher energy and food prices.
It may rise to more than 1.5% in April, once the mobile phone fee reductions are over.”
At its next policy meeting scheduled for mid-January, the Bank of Japan will examine price data.
Since September, the core CPI has seen a year-on-year increase. The slowest year-on-year increase in three months was January’s.
After a late 2020 domestic travel campaign, the prices of accommodation rose 0.6% compared to a year ago. This was the lowest rate of growth since June 2021.
The CPI fell by 1.5 percentage points due to cell phone fee reductions.
The slow overall rate of price growth shows that prices have not risen as much in the third-largest economy in the world, which is quite remarkable considering other advanced economies’ much more dramatic gains. This is due to the fact that firms are discouraged from increasing their prices because of slow wage growth.
This small gain strengthened expectations that the Bank of Japan will keep its ultra-loose Monetary Policy for the moment to reach its 2% inflation target.
Saito stated that any sharper increases in consumer prices over the next few months are unlikely to prompt the central bank into tightening monetary policy but could allow for new government stimulus.
He suggested that this could include expanding a subsidy program to reduce the steep rise in gasoline prices and other fuel prices, or eventually additional cash handouts to households.
Global energy prices rose 17.9% in January compared to a year ago, largely due to rising fuel costs and electricity bills.
Despite concerns about the potential side effect of a weakening Japanese yen, the BOJ has maintained a massive monetary stimulus to infuse inflation to its target.