Consumer price gains in Japan remained little more than zero in June while household spending dropped, challenging the central bank’s effort to spur inflation.
Consumer prices excluding fresh food rose 0.1 percent from a year earlier, fractionally better than economists estimated. The same measure for Tokyo showed a 0.1 percent decline.
While BOJ Gov. Haruhiko Kuroda is making little progress toward his 2 percent target, the Bank of Japan is highlighting an alternative measure that strips out cheaper oil and shows bigger price gains. JPMorgan Chase & Co. and Barclays PLC are among economists estimating a second-quarter contraction that could sap momentum in inflation that Kuroda predicts will pick up later this year.
“I can’t see when the BOJ will be able reach the 2 percent inflation target at all,” Yasunari Ueno, chief market economist at Mizuho Securities Co., said before the data came out. “It appears to be a matter of time before the BOJ adds monetary stimulus.”
Oil has tumbled more than 50 percent from last year’s high, squelching early progress that the BOJ made with unprecedented monetary stimulus in reflating the economy. Consumer prices excluding food and energy increased just 0.6 percent in June from a year earlier.
Household spending, which dropped in 14 of the past 15 months, fell 2 percent in June from a year earlier. Retail sales data released earlier in the week showed a 0.8 percent drop from May while industrial production provided a bright spot, rebounding more than expected.
The drag on inflation from oil prices is likely to peak in the July-September period, Deputy Gov. Hiroshi Nakaso said earlier this week, predicting inflation will pick up quickly from autumn.
Nakaso said he would pay attention to an alternative gauge of consumer prices that excludes fresh food and energy that the BOJ presented for the first time in a monthly report for July. Inflation by that measure was 0.7 percent in May versus 0.1 percent for its main gauge, which excludes fresh food only.
“An increasing number of firms seem to be able to pass increased costs,” Nakaso said. “Upward price revisions have been more widespread, which is something that has not been observed in recent years.”
Lotte Co. has boosted the price of its chocolate product for the first time in 41 years. Pokka Sapporo Food & Beverage Ltd. said on July 13 that it will raise prices of five lemon juice products by 10 percent.
The yen’s 25 percent drop against the dollar since Kuroda introduced an unprecedented asset-purchase plan in April 2013 has pushed up costs of imported raw materials and products. Kuroda forecasts inflation will accelerate as the economy faces increasing supply constraints, wages gain and consumers and companies act on expectations that living costs will rise. He’s said inflation will reach the 2 percent target around the six months through September 2016.
There isn’t enough momentum in Japan’s economy to drive up inflation, said Yoshiki Shinke, an economist at Dai-ichi Life Research. He sees a contraction as deep as 2.5 percent last quarter, driven by weaker exports and consumer spending.
Most economists see the BOJ failing to reach its goal in its time frame, with 22 of 35 in a Bloomberg survey this month forecasting that the bank will eventually bolster stimulus.
Kuroda said on July 15 he had no plans to change monetary policy for now, after the BOJ trimmed its inflation forecast to 0.7 percent from 0.8 percent for the year through March 2016.