The country’s underlying inflation rate edged up in June amid rising energy costs, government data showed Friday, though it continued to fall short of the Bank of Japan’s 2 percent target.
The nationwide core consumer price index, which excludes volatile fresh food prices, rose 0.8 percent in June from a year earlier, picking up from a 0.7 percent rise in May to match market forecasts.
The index rose for the 18th consecutive month, up to 101 against the 2015 base of 100, according to data released by the Ministry of Internal Affairs and Communications.
A rise in the price of gasoline, kerosene and electricity pushed up the index, as did price increases by restaurants.
But so-called core-core consumer prices, which exclude both fresh food and energy, rose just 0.2 percent from a year prior, slowing for the third consecutive month and suggesting price gains among other products remain weak.
Takeshi Minami, chief economist at the Norinchukin Research Institute, said the weakness was a sign that private consumption across the country continues to be sluggish and that the BOJ faces a difficult road to lifting inflation.
“Spending has been weak this year, and the torrential rains (in western Japan earlier this month) will drive up vegetable prices, further denting sentiment.”
“The BOJ will probably downwardly revise its inflation forecast for fiscal 2018 at its policy meeting through July 30-31,” he added. In April, the central bank projected inflation would accelerate to 1.3 percent in the year through March 2019.
At the two-day meeting, the central bank’s policymakers are expected to examine the reason inflation remains slow despite the tightening labor market and strong corporate earnings.
Tepid inflation has posed a headache for BOJ Gov. Haruhiko Kuroda, who has pursued the 2 percent inflation target since taking office in 2013 in a bid to lift the country out of years of deflationary stagnation.
Kuroda has blamed slow wage growth, while insisting that aggressive monetary easing is having the intended effect and momentum toward the target remains intact.
Other economists also pointed out that the latest price data represents a setback for the BOJ.
“These latest June CPI numbers are going to be another heartbreaker for the Bank of Japan,” Izumi Devalier, head of Japan economics at Bank of America Merrill Lynch, said after the release. “In terms of actual changes to (yield curve control), the 10-year target, or … the negative interest rates, I don’t think the Bank of Japan is anywhere close to signaling a policy move,” she said.
“The labor market continues to tighten and it’s not resulting in meaningful inflation pressures,” Devalier said. “I think it could fall potentially further, but the main problem here is that despite the increase in wage costs and cost pressures, inflation expectations among corporates are still very weak.”
Junko Nishioka, chief economist at Sumitomo Mitsui Banking Corp., said higher oil prices are likely to help Japan’s inflation but an increase in gasoline prices can start hitting consumers.
Nishioka expects the BOJ to explain further after its next meeting why inflation has struggled to rise in Japan. The bank will likely use the explanation to make the case as to why it needs to maintain the current monetary easing, she said before the data release.