Core inflation in Tokyo hits 2-year high as energy costs soar

Customers eat ramen noodles at a ‘Shirohachi’ ramen noodle shop run by sixty-year-old Yashiro Haga amid the coronavirus disease (COVID-19) outbreak, in Tokyo, Japan November 20, 2020. REUTERS/ Issei Kato

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  • Tokyo core CPI rises faster than expected
  • Energy costs up 26.1%, highest in 41 years
  • Core inflation of around 2% could last until the end of the year – analyst

TOKYO, March 25 (Reuters) – Basic consumer prices in Japan’s capital rose at the fastest pace in more than two years in March, propelled by energy costs which hit their highest level in four decades after Russia invaded Ukraine.

The relentless upward trend in global commodity prices could ruin Japan’s fragile post-pandemic recovery, even as domestic COVID-19 infections decline and curbs on social distancing are eased, analysts say.

Tokyo’s core consumer price index (CPI), which excludes volatile fresh foods but includes energy products, rose 0.8% year on year in March, the fastest pace since December 2019. It was also faster than the median market forecast for a 0.7% gain and the 0.5% rise in February.

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“While Japan’s recovery from the pandemic remains slow, the reopening of Western economies has supported global inflation before Japan could reopen its economy,” said Toru Suehiro, senior economist at Daiwa Securities.

“Now prices are rising again on Ukraine (war), which is such an unwelcome drag on consumption for the Japanese economy.”

The measure of inflation in the Japanese capital is seen as a leading indicator of the national core CPI which is released about a month later.

A 26.1% rise in energy prices — the fastest annual growth in 41 years — pushed Tokyo’s core CPI up in March, the data showed.

However, gasoline price inflation slowed from February thanks to fuel subsidies that the government extended earlier in the month. Read more

Prices also rose for a wide range of items ranging from wheat-based foods to entertainment services.

In the overall reading that includes fresh food prices, Tokyo’s CPI in March rose 1.3% from a year earlier, hitting the highest since April 2019.

But the one-off effect of cuts in mobile phone charges caused the overall index to fall 1.08 points, it showed.

Even before Russia’s invasion of Ukraine, Japan’s central bank expected core inflation to approach its elusive 2% target, according to the minutes of its January meeting. released Thursday. Read more

Prime Minister Fumio Kishida is expected to instruct his cabinet next week to work out further relief, such as fuel subsidies and other measures for households.

In April, part of the special effect of mobile phone charges disappears, but the government’s planned extension of fuel subsidies could prevent Japan’s core CPI from rising by much more than 2%, said Suehiro from Daiwa.

Cost increases driven by the conflict in Ukraine will take about six months to hit consumers’ electricity and gas bills, so the inflationary blow to Japanese households will peak later this year, Suehiro said.

“I expect (core) inflation of around 2% to continue through the end of 2022,” he said. “Economic growth in April-June will still be strong thanks to a rebound in services spending…but I’m worried about July-September and beyond.”

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Reporting by Yoshifumi Takemoto and Kantaro Komiya; Editing by Sam Holmes

Our standards: The Thomson Reuters Trust Principles.

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