The February core consumer price index rose 0.5 percent to 97.6 from a year ago, compared with the 100-point benchmark for 2000, the government announced Friday, marking the index’s fourth consecutive year-on-year increase.
The Internal Affairs and Communications Ministry attributed the rise in the CPI to soaring kerosene prices and higher natural gas and gasoline prices, which rose due to a higher crude oil prices and a cold snap.
The ministry said the trend will continue and the rise in the price of petroleum products will push up the index.
The rise in the core CPI — which excludes volatile perishable food prices — was also half a percent higher in January, prompting the Bank of Japan to end its five-year-old ultraloose “quantitative easing” monetary policy on March 9.
Even though the government has yet to declare deflation dead, the steady rise in the CPI, as well a pickup in the labor market, has market analysts speculating about when the Bank of Japan will raise interest rates from their near-zero levels.
“It is necessary to observe closely whether the uptrend will continue, since soaring crude oil prices have affected” the core CPI increase, Chief Cabinet Secretary Shinzo Abe said at a news conference after a Cabinet meeting.
Abe was cautious about the outlook for interest rate hikes, saying interest rates should not rise “under circumstances where (even mild) deflation continues.”
Yasunari Ueno, chief market economist at Mizuho Securities Co., said Friday’s report confirms the rising price trend, while employment continues to recover.
But Ueno said the February figures are not strong enough to pull the nation out of deflation or to bring an immediate rise in prices. “Thus there’s no need (for the BOJ) to hurry in raising interest rates.”
But he added the central bank may begin raising rates by July or August, if the government announces an end to deflation in June.
It will be difficult for the BOJ to raise interest rates after September, when Prime Minister Junichiro Koizumi is scheduled to step down. He may be replaced by Abe, who is known to oppose interest rate hikes.