CPI snaps out of four years of falling; ‘Abenomics’ lauded

Bloomberg, Kyodo

The consumer price index snapped four years of declines in September, signaling progress in Prime Minister Shinzo Abe’s campaign to stamp out deflation and drive a sustained economic revival.

Prices excluding energy and fresh food were unchanged from a year earlier after sliding every month since December 2008, the Statistics Bureau said Friday. That matched the median forecast of 19 economists in a Bloomberg News survey.

Advances in countering falling prices may help Abe sustain confidence in the recovery and encourage companies to raise wages as the sales tax increase planned for April threatens to deal a blow to consumption. Fiscal and monetary stimulus are underpinning a revival after 15 years of deflation.

“Today’s data show that an entrenched deflationary trend is coming closer to ending,” said Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management Co. “Wage growth will be key to cushioning the price increases.”

The end of the slide in prices excluding energy and fresh food is “a mark we have to pass on the way to ending deflation,” Akira Amari, economic and fiscal policy minister, told reporters Friday after the report was released. “We’ve passed the eighth stage of 10 in the bid to escape from price falls.”

Consumer prices excluding fresh food rose 0.7 percent from a year earlier, a fourth straight gain and matching the median estimate of economists. The Bank of Japan focuses on this gauge as its key measure, with policymakers seeing a 0.6 percent gain this fiscal year, and 1.9 percent in the year starting in April 2015, according to their median forecast in July. They will update their outlooks at a meeting next week.

Abe and the BOJ are targeting 2 percent inflation.

Despite the upward momentum in consumer prices, however, many economists believe it remains difficult for the BOJ to achieve its 2 percent inflation target in about two years after introducing ultra-easy monetary policy last April.

Yuichiro Nagai, an economist at Barclays Securities Japan Ltd., said the rise in the core consumer price index is largely attributable to high energy prices and effects of a weak yen, which pushes up import prices, while the achievement of the 2 percent target requires a gain in services prices, desirably as a result of wage increases.

Though current moves of prices are in line with the BOJ’s expectation, “We expect the BOJ to revise down its CPI projection in April as its divergence with the actual path will have widened by that time,” prompting the bank to further ease monetary policy, Nagai said.

Regular wages excluding overtime and bonuses declined 0.6 percent in August from a year earlier, a 15th straight drop. Abe said in the Diet on Thursday he would continue asking companies to raise salaries.

Gasoline prices rose to ¥161.4 per liter last month, the highest level since 2008, according to the Ministry of Economy, Trade and Industry. They stood at ¥160.1 this week. Demand for liquid natural gas may rise as the nation enters colder months without any nuclear plants in operation, pushing up electricity costs.