Japan’s Core Inflation Expected to Rise, Pressuring Central Bank

Japan’s core inflation is anticipated to re-accelerate in September 2023, marking the first increase in four months. This shift comes amid ongoing rises in living costs, according to a recent poll conducted by Reuters. The data indicates growing pressure on the Bank of Japan (BOJ) to consider raising interest rates at its upcoming meeting scheduled for October 29-30.

Analysts project that the core consumer price index (CPI), which includes energy prices but excludes fresh food, may have increased by 2.9 percent year-on-year in September. This estimate follows a 2.7 percent rise observed in August, which represented the slowest growth rate in nine months and the third consecutive month of deceleration after a significant 3.7 percent increase in May.

Inflation Trends and Economic Analysis

The expected inflation rate for September is partly influenced by a comparative analysis against September 2022, when energy prices decreased due to the introduction of utility and gas subsidies. Analysts from SMBC Nikko Securities noted that while increases in food and other prices are ongoing, the momentum is not as vigorous as it was last year.

Japan’s core inflation has consistently exceeded the BOJ’s target of 2 percent for over three years. This persistent rise has resulted from companies passing on increased raw material and labor costs to consumers. The BOJ evaluates a variety of inflation measures to assess underlying trends, indicating a comprehensive approach to monetary policy.

The internal affairs ministry is set to release the official CPI data for September at 8:30 a.m. JST on October 24, 2023 (2330 GMT on October 23). As the data approaches, market observers await the findings, which may significantly influence the BOJ’s monetary policy decisions in the near future.

The combination of rising inflation and the central bank’s ongoing analysis of economic conditions suggests that Japan may be navigating a complex landscape as it seeks to balance growth and price stability in the months ahead.