Core consumer inflation in Japan increased to a 40-year high in October, spurred by currency weakness and imported cost pressures that the central bank dismisses as it maintains its ultra-low interest rate policy. The countrywide core consumer price index (CPI) increased 3.6% year on year, beating the 3.5% increase predicted by economists and the 3.0% increase reported in September.

It was the biggest increase since February 1982, when a Middle East crisis caused by the Iran-Iraq war hindered crude oil supply and caused energy prices to skyrocket. The rise in the index, which excludes volatile fresh food prices but includes oil goods, indicated that inflation stayed above the Bank of Japan’s (BOJ) 2% target for the seventh month in a row.


However, economists do not expect the BOJ to join the global trend of hiking interest rates because it views this year’s increase in inflation as a cost-push episode that will subside once import costs cease pushing. Foreign supply limits have driven up import prices for food, industrial goods, and manufacturing parts, as has a drop in the yen, which is down more than 20% in dollar terms this year.

“I haven’t changed my mind that the rise will begin to slow down soon,” said Takeshi Minami, head economist at Norinchukin Research Institute, citing worldwide grain price decreases. “I anticipate that inflation will peak by the end of the year and that price increases will begin to slow in the new year.”

BOJ Governor Haruhiko Kuroda emphasized on Thursday his commitment to maintaining monetary stimulus in order to achieve wage growth and stable inflation. The central bank keeps long-term interest rates near zero and short-term interest rates at minus 0.1%.

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As it rebounds from the COVID-19 crisis, the economy remains unstable. In addition, by developed-country standards, Japan’s inflation rate remains moderate. Kuroda claims that global commodity costs account for half of Japan’s pricing increases.

According to October data, raw-material price increases and the yen’s weakness drove a 15.2% increase in energy expenses, while food excluding perishables increased by 5.9%, the fastest increase since March 1981. Food prices increased by 88% year on year, led by alcoholic beverages such as beer and sake.

Household durable goods prices rose 11.8%, the most since March 1975, due to rising transportation, raw material, and energy costs, as well as a weak currency. According to the data, Japanese enterprises may be shaking off their deflationary mindset as they apply price increases to a wider range of products adding to inflation. 406 of the 522 items that comprise the core consumer price index were more expensive in October than a year ago. 385 were in September.

The BOJ forecasts that average prices will be 3% higher in the fiscal year 2023-24 than in the fiscal year 2021-22, but that the increase would be half as large since commodity and other cost-push factors will have abated. The corporate products price index increased 9.1% year on year in October, indicating that subcontractors are grappling with wholesale price pressures.

What is Inflation?

In economics, inflation is an increase in the overall price of goods and services in an economy. When the general price level rises, each unit of currency purchases fewer products and services; hence, inflation equates to a loss of money’s purchasing power. Deflation, or a sustained reduction in the general price level of goods and services, is the inverse of inflation.

The inflation rate, which is the annualized percentage change in a general price index, is the most commonly used metric of inflation. Because not all prices rise at the same rate, the consumer price index (CPI) frequently comes into use for this purpose. In the United States, the employment cost index is also used to calculate wages.

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