Japanese inflation stuck at 10-year high

TOKYO: Japanese inflation stayed at a decade high in August, the government said Friday, amid signs that rising prices are becoming more entrenched in Asia's largest economy. Core consumer prices rose 2.4 per cent from a year earlier, up for an 11th straight month, the government said. Inflation matched the figure for July, when it hit the fastest pace since October 1997.

There were signs that rising energy and material costs are starting to push up the cost of other goods and services, which analysts said could prompt consumers to tighten their purse strings as the economy skirts recession. Japan's economy posted its sharpest contraction in nearly seven years last quarter. Consumer spending remains sluggish, while exports to the United States and Western Europe are falling due to the worsening global economy.

"Rising grocery prices are particularly negative for consumer demand, and this trend of high prices is likely to last for some time, which could weigh on the economy," said Norio Miyagawa, an economist at Shinko Research Institute.
Japan was trapped in a deflationary spiral for years, but few people are cheering the return of inflation because it is being driven by rising import costs rather than a stronger domestic economy.

Japan's new finance minister said the government must ease the pain of rising prices for consumers and business. "I think counter-measures are needed to tackle factors that are pushing up the cost (of living or doing business) for consumers and businesses," Shoichi Nakagawa told reporters.

Core inflation in Tokyo, a leading indicator released a month earlier than the figures for the whole of Japan, rose to 1.7 per cent in September from 1.5 per cent in August, the government reported. Excluding food and energy, Tokyo prices rose 0.5 per cent, suggesting that inflationary pressures are spreading to other goods and services, analysts said.

"Cost-push price increases are spreading," said Mamoru Yamazaki, an economist at RBS Securities Japan. "That's negative for consumer spending. Nominal wage growth is miserable at the moment." Despite the resurgence of inflation, Japan's central bank is not expected to raise its super-low interest rates any time soon to try to contain price pressures, due to the weak state of the economy and current financial tumult.

The Bank of Japan has kept its benchmark lending rate at 0.5 per cent, the lowest among the major economies, since February 2007. Analysts said, however, that a recent drop in the price of oil and other commodities should help to rein in inflation in the months ahead.

Japan's core inflation in September is likely to maintain a similar pace as in August and then ease over the rest of the year, while staying above 2.0 per cent, predicted Yamazaki.