Core inflation has returned to Japan for the first time since 2015, with consumer prices excluding fresh food rising by 0.1 per cent in January over the same month a year earlier.
The return to positive territory was driven by energy — petrol prices jumped 9.2 per cent year-on-year after big drops in 2016 — but the rise will be welcome news for the Bank of Japan.
The data suggest price pressures in Japan are picking up again with the recovery of global commodity prices and a slide in the yen since the election of US president Donald Trump, giving the BoJ renewed hope of hitting its 2 per cent inflation target.
It will also boost Prime Minister Shinzo Abe as Japan heads into spring wage negotiations that are expected to produce disappointing pay rises.
Headline consumer prices were up by 0.4 per cent on a year ago, compared with 0.3 per cent the previous month. The so-called “core-core” CPI, a narrower measure excluding all volatile food and energy prices, was up 0.2 per cent on year earlier.
Japan has struggled to escape from two decades of on-and-off deflation since Mr Abe’s rise to power in 2012. Initial momentum was set back by a consumption tax rise in 2014 and the emerging market slowdown of 2015-16.
That has made it hard to convince consumers that prices will rise enough to meet the BoJ’s 2 per cent inflation goal, although there are clear signs of a strengthening economy, with growth above its long-run trend and a tightening labour market.
“We expect core inflation will pick up to around 1 per cent this autumn, driven by the post-US election yen depreciation,” said Kiichi Murashima, an economist at Citi in Tokyo.
Unemployment fell from 3.1 per cent to 3 per cent in January, as labour shortages started to bite. The ratio of job openings to applicants held steady at 1.43, only a little short of its bubble-era high.
“If ongoing tightening in the labour markets continues, wage growth may pick up in a more meaningful manner at some point in the future and this may start exerting upward pressure on prices, especially service prices for which the share of labour costs is high,” said Mr Murashima.
However, he noted that the effects of a hot jobs market on wages had not been as strong as expected during the past few years.
Robust figures on corporate investment mean analysts expect an upward revision to Japan’s growth data for the fourth quarter when the numbers are published next week.
Takeshi Yamaguchi, an economist at Morgan Stanley MUFG in Tokyo, forecast the figure would be revised up from annualised growth of 1 per cent to 1.6 per cent.
Most estimates of Japan’s long-run potential growth rate are about 0.5 per cent, given the country’s shrinking population. Growth faster than 0.5 per cent implies companies are hiring unemployed workers or those who were previously out of the labour force.
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