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Japan’s consumer inflation turns positive as energy costs rise -Breaking

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© Reuters. FILE PHOTO – A worker in a shop holds a sign to draw costomers to Tokyo, Japan on May 16, 2018. REUTERS/Issei Kato/File Photo

By Leika Kihara

TOKYO, Reuters – Japan’s core consumer price index rose in September. This is a result of rising fuel and material costs pushing up inflation.

Rising fuel prices will accelerate inflation, according to analysts. However, any rise in consumer inflation relative to other advanced economies is modest as slow wage growth and consumption weighs down on consumers. This keeps companies from increasing their prices too much.

Capital Economics’ economist Tom Learmouth said, “Looking through artificial distortions and one-off hits we expect underlying inflation will peak just shy +1.0% soon next year before falling back.”

According to government data, the core consumer price index, which excludes volatile fresh produce prices and includes fuel costs rose 0.1% in September, compared with one year before, according to Friday’s government data. It was also consistent with the median market forecast. The August figure was identical.

Mainly, this gain was due to an increase of 7.4% in energy costs. This is the highest annual growth in three years. The September increase in gasoline prices was 16.5% compared to a year ago.

Prices for processed food and durable goods rose as well, but this was offset by a drop in telecom fees of 44.8% due to the reductions made by cellphone operators.

Core consumer inflation is expected to rise to 1% over the next few months, as rising costs have been seen driving up electricity bills at a delay of 3 to 5 months.

However, many doubt this cost-push inflation will result in wider and more sustained price growth.

Takeshi Minami (chief economist, Norinchukin Research Institute) stated that “The reopening Japan’s economy would lift service spending and foster prices rises.”

He said that Japanese consumers tend to switch to lower-priced goods whenever the price rise continues. This could lead to a price-cutting battle between companies.

These data are among the factors that Bank of Japan will take into consideration at its policy meeting next week, which will see it release new quarterly inflation and growth projections.

Japan was not spared from the effects of global commodity inflation. In September wholesale prices reached a record 6.3%, which is a new 13-year high. This has put pressure on corporations profit margins, and raised concerns about unintended consumer price rises.

Consumer inflation is still at zero, as companies are reluctant to pass costs on to the households. This reinforces expectations that the BOJ’s 2 % target will not be met.

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