Core inflation in Japan's capital is rising, supporting the case for a BOJ hike By Reuters
Written by Makiko Yamazaki and Satoshi Sugiyama
TOKYO (Reuters) – Core inflation in the Japanese capital grew at a fourth-month pace in August, data showed on Friday, tracking comfortably above the central bank's 2% target and supporting market expectations of a future interest rate hike.
The Tokyo core consumer price index (CPI), which excludes fresh food costs, rose 2.4% in August from a year earlier, faster than the average market forecast of 2.2% and a 2.2% gain in July.
A separate index that strips out the effects of both fresh food and fuel costs, widely viewed by the BOJ as a broad price index, rose 1.6% in August from a year earlier after rising 1.5% in July.
Tokyo's rapid inflation, seen as a leading indicator of nationwide trends, largely reflected the outflow of government subsidies for utility debt and a rise in rice prices due to intensifying shortages caused by extreme heat.
“Some one-time factors have caused inflation but the trend of inflation will continue to moderate in the coming months,” said Takeshi Minami, senior economist at Norinchukin Research Institute.
But with rising wages expected to boost private consumption and boost inflation, the case is mounting for the Bank of Japan to raise interest rates, Minami said.
Separately, the Ministry of Economy, Trade and Industry upgraded its assessment of industrial output for the first time since March last year, after releasing data showing that output increased by 2.8% in July from the previous month.
Manufacturers surveyed by the ministry expected output to rise 2.2% in August and contract 3.3% in September, the data showed.
But the official cautioned against the outlook, adding production plans may not be as robust as expected in August.
The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July in historic steps away from a radical 10-year stimulus plan.
BOJ Governor Kazuo Ueda said the central bank will raise rates again if inflation is on track to firmly reach its 2% target in the coming years, as the BOJ board projects.
The central bank expects wages to rise to boost prices and keep long-term inflation around 2%.
