Core consumer inflation wallowed at a two-year low in July, government data showed Friday, increasing pressure for the central bank to acknowledge price momentum has been slowing and expand its radical stimulus program.
Japan’s underlying inflation rate was unchanged for the month, at 0.6 percent, still far short of the Bank of Japan’s goal of 2 percent.
The year-on-year gain in the nationwide core consumer price index, which excludes volatile fresh food prices, reflected higher utility costs, but falling mobile phone fees and gasoline prices weighed on the inflation rate, the Ministry of Internal Affairs and Communications said.
The core CPI rose for the 31st straight month, reaching 101.5 against the 2015 base of 100. “There is no change in our view that (consumer prices) are on a moderate upward trend,” a ministry official told a news conference, adding that the government will closely watch the effects of crude oil prices on the index.
With the global economy hit by the Sino-U.S. tariff war, and a pick-up in demand in the second half of the year uncertain, attention has turned to central banks worldwide to gauge their readiness for further stimulus.
Indeed, expectations that the BOJ will ease further have grown, a recent Reuters poll showed, after the central bank committed at its last policy meeting to expanding stimulus if a global slowdown prolongs and threatens to derail Japan’s economic recovery.
Energy costs increased 0.6 percent in the reporting month, with electricity and gas prices rising 2.7 percent and 3.0 percent respectively. Oil product prices dropped 2.7 percent, affected by a 4.3 percent decline in gasoline prices.
Prices for nonperishable foods grew 1.2 percent as ice cream shot up 6.9 percent in price on higher raw material and transportation costs, the ministry said.
Those of household durable goods, including vacuum cleaners and air conditioners, increased 3.8 percent in a sign that consumers are increasingly buying new appliances ahead of the consumption tax hike in October, according to the ministry.
Takeshi Minami, chief economist at the Norinchukin Research Institute, warned of the impact on the economy from the tax increase to 10 percent from 8 percent, which it is widely feared will hurt household and business spending. “It is hard to expect an upward pressure for prices to gain momentum in the near future given the risk that private consumption may be dampened after the tax rise,” Minami said.
The BOJ has downgraded its estimates of growth and inflation over the coming years while saying it will keep interest rates ultralow, at least until next spring, to boost the economy.
Friday’s data also showed that so-called “core-core” consumer prices, excluding both fresh food and energy-related items, rose 0.6 percent in July from a year earlier, picking up from a 0.5 percent rise in June.
The data indicated the central bank remains well behind in its efforts to achieve its 2 percent inflation target, as an eight month export slump on the back of the U.S.-China trade war and slowing global demand take a toll on the world’s third-largest economy. “It’s just a matter of time before the BOJ acknowledges that the momentum of a higher inflation rate is being lost,” said Masaaki Kanno, chief economist at Sony Financial Holdings. “Japan is not in deflation at all, but it (inflation) is far below the BOJ’s target.”
Japan’s economy grew an annualized 1.8 percent in the second quarter, thanks to robust household consumption and business investment. But despite signs of strength at home, analysts have warned that the timing of a pick-up in global demand will be crucial for the growth outlook.
In July, exports slipped for an eighth month, marking the longest run of declines in exports since a 14-month stretch from October 2015 to November 2016.