Tokyo inflation regains momentum as BOJ prepares price forecasts
Inflation in Tokyo has unexpectedly gained renewed upward momentum, pointing to a stronger than thought underlying price trend as the Bank of Japan prepares to release its latest inflation projections at Kazuo Ueda’s first monetary policy meeting as governor.
Consumer prices excluding fresh food rose 3.5% in the capital in April, picking up speed from 3.2% in the previous month as processed food prices continued to strengthen, according to data released by the internal affairs ministry on Friday. Economists had expected the reading to match its pace in March, after two months of slowing down.
Inflation in Tokyo is a leading indicator of the nationwide trend.
Friday’s result shows that inflation remains hot, even after the government’s stimulus measures curbed utility prices. The key metric has been above the Bank of Japan’s price target of 2% for 11 months in Tokyo, while inflation excluding fresh food and energy has also continued to gain pace, stoking concerns that the bank may be underestimating the strength of underlying price increases.
"April has a lot of service price changes so I was keeping a close watch,” said Mari Iwashita, chief market economist at Daiwa Securities. "Looking at the details, service prices for things like hotels and entertainment are rising — inflation is spreading beyond the gains we’ve been seeing in food and eating out.”
Ueda said in parliament Monday that inflation is expected to cool to below 2% later this fiscal year.
BOJ watchers widely expect the academic-turned-BOJ-chief won’t make a big splash at his first meeting, leaving interest rates and asset purchase setting unchanged. Ueda himself has recently said that it’s appropriate to continue with monetary easing including the yield curve control program, considering current economic and inflationary conditions.
"The BOJ is unlikely to change its scenario that prices will peak out toward the second half of this fiscal year,” said Iwashita. "I think it’ll continue with easing given the economic outlook as well.” Read More…
