By Kantaro Komiya and Leika Kihara

TOKYO, Reuters – Japan’s core consumer price rose 0.5% to December from a year ago. This is a result of rising fuel costs and increased raw material prices.

Bank of Japan policymakers were alerted to the recent rise in inflation. They suggested that some firms could be beginning to pass on more costs to consumers by being more aggressive, according to minutes of their December interest-rate-setting meeting.

It is unlikely that Japan will experience a sharp rise in wages as the United States. One BOJ board member said that there was a good chance for both economic growth as well as inflation to exceed expectations.

Core consumer price index (CPI), which includes volatile fresh food, but does not include energy costs, rose slightly less than market expectations of 0.6%. According to government data, Friday’s 0.5% gain was similar to that of November. This was the fastest increase since February 2020.

The BOJ is unlikely to withdraw monetary stimulus immediately, as inflation remains well below its target of 2% and is driven mainly by external factors, not strong domestic demand.

However, the central bank will have to manage the market speculation that a quick exit from ultra-easy policy would cause. Some analysts predict consumer inflation could reach 2% by April’s end when the cellphone fee reductions are over.

Inflation may be a problem at a time of Omicron new coronavirus variant surges and people staying home to protect themselves cloud Japan’s fragile economic recovery.

The December CPI data revealed that electricity bills rose 13.4% from one year ago, which is the highest rate since 1981.

According to BOJ Minutes, a BOJ member stated that “We are seeing changes in the price setting behaviour of Japanese companies,” citing a BOJ board member who said at December’s meeting.

Japan was not spared from the global commodities inflation. Wholesale prices rose at an alarming rate, prompting more businesses to hike prices. This has already shifted public opinion that there will be deflation.

On Tuesday, the BOJ increased its price projections but did not rush to alter its loose policy. It believes that recent inflation caused by cost-push will be temporary.

Haruhiko Kuroda, Governor of BOJ has stated that the bank will focus on determining whether wage increases are sufficient to boost purchasing power and allow companies to raise prices to sustainably increase inflation.

However, it is uncertain whether the Prime Minister Fumio Kishhida will ask companies to increase wages because of stubbornly high input cost, which can result in a loss of profit.

Analysts remain unsure if inflation will increase beyond the goods that are sensitive to commodity and fuel prices.

CPI data indicated that December saw a 0.7% drop in an index that removes the impact of volatile fresh foods prices and energy. It fell for the ninth month consecutively.

There are some goods that can be raised in price with relative ease. For example, fuel or energy. Taro Saito is an executive researcher at NLI Research Institute. “I do not believe that there will be the same price growth in Europe or the United States.”