Consumer price inflation in Japan in August reached near an 8-year high

Consumer price inflation in Japan in August reached near an 8-year high

By Leika Kihara and Takahiko Wada

TOKYO (Reuters) – Japan’s core consumer price inflation accelerated to 2.8 percent in August, the fastest annual pace in nearly eight years, data showed on Tuesday, in a sign of widening inflationary pressures from rising raw material costs and a weak yen.

While core consumer inflation has exceeded the central bank’s 2% target for five consecutive months, the Bank of Japan is unlikely to raise interest rates anytime soon as wage and consumption growth remain subdued, analysts say.

The data highlights the dilemma the Bank of Japan faces as it tries to support the fragile economy by maintaining ultra-low interest rates, which in turn fuels an unwanted slide in the yen that is driving up households’ cost of living.

The rise in the nationwide Core Consumer Price Index (CPI), which excludes volatile fresh food but includes fuel costs, was slightly larger than the median market expectation for a 2.7% increase and was followed by a 2.4% rise in July.

Hailed as it gave a boost to exports, the weak yen has become a nuisance to Japanese policymakers, as it hurts retailers and consumers by inflating already high prices for imported fuel and food.

The world’s third-largest economy expanded at an annualized rate of 3.5% in the second quarter, stronger than the initial estimate. But its recovery has been slower than in many other countries as the resurgence of COVID-19 infections, supply constraints and rising raw material costs have affected consumption and production.

While inflation remains modest compared to many other developed countries, the global slowdown and rising energy prices are hampering expectations. The Bank of Japan has pledged to keep interest rates very low and to stay out of the global wave of monetary tightening.

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