Japan’s core inflation may reach an 8-year high

A Reuters poll revealed the core inflation index to approach an eight-year high in August. The reason is a price surge for raw materials, caused by weakening the national currency — the yen, which indicates continued price pressure for the economy.

The Consumer Price Index (CPI), not taking into account fluctuations in fresh products, however, including energy prices, rose by 2.7% from a year earlier, as experts estimate. 

This hike is considered the fastest since November 2014, particularly incorporating the 2.4% annual increase recorded in July. 

“Inflation is expected to gain momentum in July,” said Takeshi Minami, lead economist at the Norinchukin Research Institute. In fact, the following categories are projected to rise in value: processed food, entertainment and utilities.

The economist noted attempts are being made to avoid the price hikes for raw materials, but the CPI for August may show similar figures.

Notably, the CPI’s push could be the highest in 31 years, especially if past sales tax increases are not taken into account, Minami mentioned. 

The Index was forecasted to remain above the BOJ's inflation target of 2% over the last 5 months. That also indicated price pressures on households due to higher commodity costs. 

Actually, the survey showed the BOJ's intention to keep its target rate at -0.1% in the short run, along with guiding 10-year government bond yields at 0-0.25%. These actions are likely to come into practice at the Central Bank’s next meeting scheduled for September 22.

The Bank of Japan set a 2% inflation target back in 2013, when Haruhiko Kuroda took over as governor. He has repeatedly mentioned the subsequent stimulus for the economy, since inflation push caused by higher costs promises is to be temporary.

Authorities would release the CPI data at 8:30am on September 20 (23:30 GMT, September 19), two days before ending the Central Bank’s meeting on political issues.