Tokyo — Japan’s major consumer prices rose for the fifth straight month in January, but at a slower pace than last month, increasing the likelihood that central banks will lag behind other economies in raising interest rates.
Consumer inflation is expected to recover in the coming months due to soaring energy prices, but last year’s mobile phone price cuts are out of the calculation and will not be price cuts.
The Core Consumer Price Index (CPI), which excludes volatile fresh food prices and includes fuel costs, rose 0.2% year-on-year in January, government data said Friday.
This was weaker than the median forecast of a 0.3% increase in Reuters polls and a 0.5% increase in the last two months.
Taro Saito, Executive Research Fellow at the NLI Institute, said:
“Once the effects of mobile phone price cuts are gone, it could jump to more than 1.5% at a time in April.”
Price data will be one of the factors that the Bank of Japan will scrutinize at the next policy meeting scheduled for mid-next month.
The core CPI has risen year-on-year every month since September. The January increase was the slowest year-on-year increase in three months.
Room rates have risen only 0.6% year-on-year, the weakest growth rate since June 2021, after the end of the domestic travel campaign in late 2020.
Mobile phone price cuts pushed the CPI down about 1.5 percentage points last month.
The slow overall rate of increase indicates that inflation in the world’s third-largest economy remains very modest compared to the significant inflation in other advanced economies.
The slight rise has strengthened expectations that the Bank of Japan (BOJ) will maintain its ultra-loose monetary policy for the time being to reach its 2% inflation target.
Saito said the sharp rise in consumer prices in the coming months is unlikely to urge central banks to tighten monetary policy, but could open the door to new government stimulus.
This could include expanding subsidies to mitigate the surge in gasoline and other fuel prices, and ultimately additional cash distribution to households, he said.
Overall energy prices rose 17.9% year-on-year in January, the largest increase in more than 40 years, partly due to soaring electricity and fuel costs.
The Bank of Japan is sticking to large-scale monetary stimulus measures as it seeks to reach its inflation target, despite concerns about the side effects of the weak yen.
By Daniel Leussink