Inflation in Tokyo accelerated to 2.8%

Inflation in Tokyo rose for the fourth month in a row. Inflation in Tokyo is increasing at the fastest pace since 1992. In Tokyo, consumer prices, excluding food prices, rose 2.8% in September. The rise in prices coincided with the forecasts of economists.

Inflation in Japan's capital was fueled by rising prices for processed foods and durable goods, with the price of processed foods so high for the first time in 41 years. The impact of energy on prices was slightly less compared to the previous month.

The data from Tokyo is a leading indicator of national inflation, and if growth is similar for the country as a whole, inflation could reach 3% in September.

Higher price growth is unlikely to force the Bank of Japan to tighten its policy. Haruhiko Kuroda, whose term expires in April, has repeatedly stated that there will be no interest rate hike in the near future. He argues that current cost-push inflation will eventually subside without sustained wage growth. According to the economist, the bank needs to continue easing monetary policy to support the economy.

However, Tuesday's data shows that inflation in Tokio has exceeded the Bank of Japan's target of 2% for the fourth consecutive month. As price increases accelerate, the Bank of Japan (BOJ) chief will face even more pressure to explain why he sees the rise as temporary, especially since the rise extends to electricity as well as food.

"Energy remains a strong driver. However, the impact of boosted food prices is becoming more pronounced," said Nobuyasu Atago, chief economist at Ichiyoshi Securities and a former Bank of Japan official. "The Bank of Japan will not raise interest rates, but it has a difficult communication task to explain why it supports such a policy."

The latest summary of opinions from the Bank of Japan shows that the views of the board members on the economy and inflation are changing. This is likely to spur further speculation about a possible policy change.

“Looking ahead, we see core inflation in Tokyo (excluding food price inflation) reaching 3% in Q4 and then declining in Q1 2023. A weaker yen is likely to push up the prices of processed foods, as well as imported goods, in October.” - Yuki Masujima, Bloomberg Economist.

To combat the continued rise in prices, Prime Minister Fumio Kishida extended the aid measures and ordered a new economic stimulus package to be drawn up by the end of this month. This economic stimulus package will be partly financed from the additional budget.

Existing programs such as gas subsidies have already kept prices down, and Kishida's promises of a new program to curb electricity price increases are also likely to have an impact on inflation. Energy still accounts for almost half of the rise in prices in the capital of Japan.