Japan’s inflation to jump to highest level since 1982, Citi says

JAPAN’S key inflation measure is expected to accelerate further to hit the highest level in 40 years, according to Citigroup economists.

Consumer prices excluding fresh food will likely rise 3.5 per cent in October, Citigroup economists Kiichi Murashima and Katsuhiko Aiba wrote in a note on Friday (Oct 21), after a government report showed it hit 3 per cent in September. SMBC Nikko Securities forecast it to be as high as 3.4 per cent, while NLI Research Institute see it around 3.5 per cent.

While that jump is likely to be driven at least partially through the yen’s historic slide, the Bank of Japan (BOJ) is expected to stick with its weak yen supporting easing stance.

The economist forecasts suggest Japan’s price growth is getting at least as fast as it did after the 2014 sales tax hike that helped send the economy into a contraction. BOJ governor Haruhiko Kuroda has flagged the need to watch cost-push inflation’s impact on consumer spending even as he pledges to persistently continue with easing – a stance that has helped weaken the yen to its lowest level since 1990.

For inflation, a major boost is expected to come in October from the disappearing impact from mobile phone fee cuts last year. That factor is expected to lift inflation up by 0.24 percentage point this month. A survey by Teikoku Databank showed a significant number of food items will have their prices raised this month partly as it’s the start of the second half of Japan’s fiscal year.

One factor that could potentially complicate readings is the resumption of Prime Minister Fumio Kishida’s travel campaign this month. So far the government hasn’t announced how much it would be priced into the data. Barclays expect the travel discounts to shave off as much as 0.4 percentage point from Japan’s key inflation gauge, and predicts price growth to be just around 3 per cent in the final quarter. BLOOMBERG