TOKYO (Reuters) – Core inflation in the Japanese capital slowed in September for a third straight month mainly due to lower fuel costs, data showed on Friday – a sign that cost pressures are starting to peak in an easing of the fragile economic recovery. .
But separate data showed factory output flat in August, a sign that companies are feeling the pain from weak global demand and signs of weakness in the Chinese economy.
A government survey released on Friday also showed consumer sentiment deteriorating in September, with many households yet to see wages rise enough to offset rising costs of living.
Analysts say the data set underscores the challenge the Bank of Japan faces in determining how quickly it can phase out its massive stimulus programmes, without stifling growth.
“Although inflation is moderating now, it is doing so less quickly than the Bank of Japan expected. Accordingly, the Governing Council will need to revise its inflation forecast for the current fiscal year further at its next meeting in October,” Marcel said. Thiliant, Head of Asia Pacific at Capital Economics.
“Our view is that the bank will take advantage of the current opportunity to abandon negative interest rates and plan to raise interest rates in January next year.”
Tokyo’s core CPI, which excludes volatile fresh food items but includes fuel costs, rose 2.5% in September from a year earlier, versus the average market expectation for a 2.6% increase.
It slowed from a 2.8% increase in August but exceeded the Bank of Japan’s 2% target for the 16th straight month.
The index that excludes fresh food and fuel costs, which the Bank of Japan closely monitors as a better measure of overall price trends, rose 3.8% in September from a year earlier after a 4.0% increase in August, the data showed.
Rising global commodity prices last year prompted many Japanese companies to shake off their aversion to higher prices and pass on higher costs to households, keeping inflation above the Bank of Japan’s target for longer than policymakers initially expected.
The inflation overrun prompted the Bank of Japan to make modest adjustments to its policy to control bond yields last month, a move that investors saw as a shift away from decades of ultra-loose monetary policy.
But Governor Kazuo Ueda has ruled out the chance of an early exit from ultra-loose policy, saying he needs to wait until wages rise enough to keep inflation sustainable at the 2% level.
Japan’s economy expanded 4.8% year-on-year in the April-June period, as strong exports offset weak consumption. But analysts expect a slight contraction in the July-September quarter, as slowing global demand affects exports.
Highlighting the fragile nature of the export-reliant economy, factory output weakened in August as auto production fell largely due to plant closures at Toyota Motor Corp (7203.T).
An official who briefed reporters on production data said that manufacturers surveyed by the government expect production to rise 5.8% in September and a 3.8% increase in October, although external economic uncertainties cloud the outlook.
(Reporting by Takahiko Wada and Laika Kihara – Preparing by Muhammad for the Arabic Bulletin) (Additional reporting by Satoshi Sugiyama and Yoshifumi Takemoto) Editing by Sam Holmes
Our standards: Thomson Reuters Trust Principles.