The core consumer inflation rate of the Japanese capital Tokyo, which is seen as a leading indication of national trends, surprisingly increased in October, which signaled the expansion of price pressures which in turn is expected to sustain anticipations of a an end soon the in the ultra-low interest rates. 

The information confirms anticipation that the Bank of Japan (BOJ) will raise its inflation estimates when it releases new quarterly projections at the policy meeting the following week.

According to official statistics released on Friday, the Tokyo core consumer price index (CPI), which includes fuel prices but does not include volatile fresh food, increased 2.7% in October over the same month last year, outpacing market expectations for a 2.5% increase.

The rise, which came in quicker than September’s 2.5% gain, calls into question the central bank’s prediction that inflation will decline in the upcoming months due to dying down of cost-push pressures.  

According to the data, the “core core” index – as it is often referred to as, which excludes the price of fuel and fresh food and is closely monitored by the BOJ as a barometer of overall pricing trends, increased 3.8% in October over the previous year following a 3.9% gain in September.

October had a 2.1% year-over-year increase in services prices, which was quicker than September’s 1.9% gain. This suggests that expectations of rising earnings may increase inflationary pressure beyond the products sector.

The increase in inflation, according to Capital Economics’ head of Asia-Pacific Marcel Thieliant, is “consistent with our view that inflation will only fall below the BOJ’s 2% target by the end of 2024.”

“With services inflation continuing to accelerate, it will take a long time before inflation falls back below the BOJ’s 2% target.”

The Bank of Japan continues to be a worldwide dovish anomaly, adhering to an extremely loose monetary policy while other major central banks rapidly hiked interest rates in an effort to combat extreme inflation.

The BOJ has promised to maintain ultra-low interest rates until the recent cost-driven price increases transition to a more lasting increase driven by domestic demand, despite the fact that inflation has been above its 2% inflation target for more than a year.

In addition to rising inflation, the BOJ is under further pressure to adjust its bond yield control next week due to the recent spike in global interest rates. According to reports quoting information from sources, a raise to the current yield cap, which was only imposed three months ago, is being considered as a possibility.

(Adapted from BusinessToday.com)

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