Japan's Consumer-Price Inflation Probably Accelerated

Japan's Consumer-Price Inflation Probably Accelerated (Update1)

By Mayumi Otsuma

Dec. 26 (Bloomberg) -- Japan's consumer-price inflation probably accelerated in November, matching the fastest pace in almost a decade, as oil costs surged.

Core consumer prices, which exclude fresh food, climbed 0.3 percent from a year earlier, according to the median estimate of 36 economists surveyed by Bloomberg News. Prices rose 0.1 percent in October, the first gain this year. The statistics bureau will publish the report on Dec. 28 at 8:30 a.m.

Faster inflation driven by rising costs probably won't prompt the Bank of Japan to raise the key interest rate from 0.5 percent in coming months because falling wages are eroding spending power. The bank last week cut its economic assessment for the first time in three years, saying growth is slowing.

``The current pickup in consumer-price inflation is not, in our view, the type that would prompt the Bank of Japan to raise interest rates,'' said Tetsufumi Yamakawa, chief economist at Goldman Sachs Group in Tokyo, who used to work at the central bank. ``The chance of a rate hike before the end of the fiscal year has virtually disappeared.''

Prices last rose 0.3 percent in August 2006. That was the quickest pace since March 1998, when an increase in the country's sales tax pushed gains to 1.8 percent.

Record energy costs are making it more expensive to travel in Japan. Tokyo's taxi operators this month raised fares for the first time in a decade, charging a minimum 710 yen ($6.20), up from 660 yen. All Nippon Airways Co., Japan's largest domestic airline, last week said it will raise some domestic fares from April 1.

Negative Effect

``We expect core prices to rise as much as 0.6 percent in March,'' said Masaaki Kanno, a former central bank official and now chief economist at JPMorgan in Tokyo. ``But unless they're accompanied by wage growth, the gains will have a negative effect on the economy.''

Japanese households last month became the most pessimistic they've been in almost four years as gasoline and food prices surged and wage growth stalled.

Wages have fallen in all but one month this year, making some retailers reluctant to pass on costs to consumers even as producers raise prices. Aeon Co., Japan's largest supermarket operator, last week said it will extend a price freeze on about 100 items, including yogurt and soy sauce, to the end of February from an initial deadline of Dec. 31.

``Declines in real incomes and costlier gasoline and kerosene prices are squeezing households,'' Aeon said in a statement released on Dec. 20.

Record Gasoline Prices

Gasoline climbed to a record 155.5 yen a liter on Dec. 10. Retail kerosene surged to the highest ever last week, according to the Tokyo-based Oil Information Center.

Price increases because of higher costs rather than an increase in demand from shoppers ``have an adverse effect on consumption, just like higher taxes,'' said Yasunari Ueno, chief market economist at Mizuho Securities Co. in Tokyo.

The increase in Tokyo taxi fares may be backfiring, as consumers used to a decade of deflation resist the increases. Daily revenue per taxi fell 3.6 percent from Dec. 3 to Dec. 9 from the same period last year, according to the Tokyo Taxi Association.

Japan's central bank held the benchmark overnight lending rate near zero for more than five years to overcome deflation. Policy makers raised the rate in July 2006 and doubled it to 0.5 percent in February. They've kept borrowing costs, still the lowest among major economies, on hold since.

Should oil resume falling, that may cause ``a temporary change in the course of consumer prices,'' a few central bank policy makers said at their Nov. 12-13 meeting, according to minutes released today.

Reports on industrial production, employment and household spending for November will also be released on Dec. 28.

Factory production slipped 1.7 percent from a record after export growth cooled, according to the median forecast of 37 economists surveyed by Bloomberg News. Analysts predict the unemployment rate to remain at 4 percent for a third month.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

Last Updated: December 25, 2007 20:56 EST