Japan inflation accelerates as price pressures broaden

TOKYO (REUTERS) – Japan’s core consumer inflation accelerated in July to its fastest in seven-and-a-half years, driven by fuel and raw material prices and adding to the costs of living for households yet to see significant wage gains.

In a sign of broadening price pressures, the so-called “core-core” index that strips away not just the impact of volatile fresh food but energy costs, also rose in July at the fastest annual pace in more than six years.

The core consumer price index (CPI), which excludes fresh food prices, rose 2.4 per cent in July from a year earlier, matching a median market forecast, government data showed on Friday (Aug 19).

That followed a 2.2 per cent gain in June and marked the fourth straight month core consumer inflation breached the Bank of Japan’s 2 per cent target. It was also the fastest pace since December 2014, excluding sales tax hike effects.

While the core index is still the BOJ’s key price gauge, the central bank has recently placed more emphasis on the core-core index to gauge how much of the inflationary pressure is coming from domestic demand, rather than one-off factors like energy costs.

With inflation still modest compared with other major economies, the BOJ is likely to remain an outlier in keeping monetary conditions ultra-loose.

The core-core index, which strips away both the effect of volatile fresh food and energy, rose 1.2 per cent in July from a year ago, the fastest since December 2015.

BOJ Governor Haruhiko Kuroda has stressed that the central bank will not see an exit from its massive stimulus programme until consumer demand picks up