Author of the article:
Reuters
Leika Kihara and Takahiko Wada
TOKYO — Japan’s core consumer inflation quickened to 2.8% in August to hit the fastest annual pace in nearly eight years, data showed on Tuesday, a sign inflationary pressures from higher raw material costs and a weak yen were broadening.
While core consumer inflation exceeded the central bank’s 2% target for five straight months, the Bank of Japan is unlikely to raise interest rates any time soon as wage and consumption growth remain weak, analysts say.
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The data highlights the dilemma the BOJ faces as it tries to underpin a fragile economy by maintaining ultra-low interest rates, which in turn is fueling an unwelcome slide in the yen that is driving up households’ cost of living.
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The rise in the nationwide core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, was slightly bigger than a median market forecast for a 2.7% increase and followed a 2.4% gain in July.
Once welcomed for giving exports a boost, the yen’s weakness is becoming a headache for Japanese policymakers, because it hurts retailers and consumers by inflating the already rising prices of imported fuel and food.
The world’s third-largest economy expanded an annualized 3.5% in the second quarter, stronger than the preliminary estimate. But its recovery has been slower than many other countries as a resurgence in COVID-19 infections, supply constraints and rising raw material costs weighed on consumption and output.
While inflation is still modest compared with many other advanced nations, a global slowdown and high energy prices are clouding the outlook. The BOJ has pledged to keep interest rates ultra-low and remain an outlier in a global wave of monetary policy tightening. (Reporting by Leika Kihara and Takahiko Wada Editing by Kim Coghill & Shri Navaratnam)
