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Thursday, September 26, 2019 - 20:09

MNI POLICY: Tokyo CPI Rise Slows; BOJ To Lower Inflation Rate


By Hiroshi Inoue

TOKYO (MNI) - Tokyo's core inflation continued to slow in September, increasing Bank of Japan concern over the outlook for national consumer prices, paving the way for it to revise down its inflation forecast, MNI understands.

September's Tokyo core consumer price index, a leading indicator of the national inflation rate, rose 0.5% on year recording a 27th straight rise, but the pace slowed from 0.7% in August, and 0.9% in July and June.

September's 0.5% y/y rise is the lowest level since May 2018 when it was also up 0.5%.

The weak core CPI was caused mainly by the fall in energy prices (-0.9% on year in Sep vs +1.1% in Aug). Its contribution turned negative (-0.05 percentage point) in September from positive (+0.06 percentage point) in August.

Corporate price hikes caused by rising costs appeared to have stalled as firms eye slowing retail sales to be led by higher prices amid sluggish wage hikes, the BOJ views.

The BOJ note a risk that corporate price hikes will slow due to weaker private consumption in or after Oct 1 when the sales tax hike is increased to 10% from 8%.

--NATIONAL RATE

Tokyo points to lower nationwide September inflation and the data due Oct 18 could see the core number dip to 0.4% or lower vs +0.5% in August -- below the BOJ's expectation of +0.8% in the current fiscal year made in July and undermining its outlook.

Processed food prices, which accounts for 15% of the total CPI, rose 1.2% on year in September according to Tokyo data, accelerating from 1.0% in August.

--SERVICES PRICES SLIP

BOJ officials are worried over the inflation outlook as costs in some services sectors, including prices for eating out, which rose 0.3% in September vs 0.4% in August, haven't seen a pick-up in upward momentum for a while.

Prices for eating out rose 1.1% on year in September, unchanged from August, again indicating price hikes have paused after hitting the recent peak of 1.3% in May.

The BOJ board will review its medium-term outlook for economic growth and inflation rate at the October 30-31 policy-setting meeting.

The weakness in core CPI over the past months will likely prompt the BOJ to lower its inflation forecast in the current fiscal year from +0.8% and the FY2020 forecast from +1.2% made in July, respectively.

--MNI Tokyo Bureau; tel: +81 90-2175-0040; email: hiroshi.inoue@marketnews.com
--MNI London Bureau; tel: +44 203-586-2225; email: les.commons@marketnews.com

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