TOKYO :Japan’s wholesale inflation held steady in September and most households expect prices to keep rising a year from now, data showed on Friday, an indication price pressures could keep the central bank on course to raise interest rates.
The yen’s recent sharp falls, triggered by receding market bets of a near-term rate hike by the Bank of Japan, could also drive up inflation by causing a renewed increase in import costs, some analysts say.
Persistent inflation would add to headaches for Japan’s new ruling party chief Sanae Takaichi, who has pledged to curb rising living costs upon becoming next prime minister.
“We’re starting to see a negative cycle in which the BOJ’s slow pace of rate hikes is depreciating the yen and pushing up the cost of living,” said Izuru Kato, chief economist at Totan Research.
The corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, rose 2.7 per cent in the year to September, steady from August and exceeding market forecasts for a 2.5 per cent increase.
“We expect wholesale inflation to stay above 2 per cent for the time being” with prices continuing to rise for food and energy, said Yutaro Suzuki, an economist at Daiwa Securities.
A survey released on Friday showed 88 per cent of households expect prices to rise a year from now, up from 85.1 per cent three months ago, suggesting the rising cost of living was heightening public perceptions that price rises will continue.
The wholesale price data is among factors the BOJ scrutinises as a leading indicator of consumer inflation, which is the central bank’s main gauge in setting monetary policy.
The yen-based import price index fell 0.8 per cent year-on-year in September, a much slower pace than a 3.9 per cent decline in August, the data showed.
Food and beverage prices rose 4.7 per cent in September from a year earlier after a 4.9 per cent increase in August.
Agricultural goods prices, which include the cost of rice, rose 30.5 per cent in September, slowing from a 41 per cent surge in August.
While the BOJ expects food inflation to moderate in coming months, such projection may come under doubt if the yen keeps sliding and pushes up the cost of importing raw materials.
The yen was set for its steepest weekly drop in a year on Friday after Takaichi’s surprise victory in a ruling party race led to receding expectations of a near-term rate hike.
A proponent of expansionary fiscal and monetary policy, Takaichi has stressed the need to focus on reflating the economy. She also said her immediate priority would be to compile a package of steps to cushion the blow to households from rising living costs.
The BOJ exited a decade-long, massive stimulus last year and raised interest rates to 0.5 per cent in January on the view Japan was on the cusp of sustainably achieving its 2 per cent inflation target.
While consumer inflation has exceeded 2 per cent for well over three years, Governor Kazuo Ueda has stressed the need to move cautiously in hiking rates further to ensure price rises are driven by solid domestic demand rather than raw material costs.
