Japanese consumer prices, including fresh food, are expected to rise 2.6 percent in the current fiscal year through March from a year earlier, mainly due to Russia's invasion of Ukraine and the impact of the yen's depreciation, the Cabinet Office said Monday.
It also revised Japan's real gross domestic product growth downward to 2.0 percent from the previous estimate of 3.2 percent released in January.
The forecast of Japan's consumer price index for this fiscal year was raised from the previous outlook of a 0.9 percent increase and represents a surge from 0.1 percent growth the previous year.
"Rising prices are a risk to the economy recovering from the coronavirus pandemic," Prime Minister Fumio Kishida said at a meeting of the Council on Economic and Fiscal Policy, where the projections were presented.
Russia's war in Ukraine has boosted prices of energy and food products worldwide, with Japan feeling heftier costs of imported products from the recent rapid depreciation of the yen to 24-year lows against the U.S. dollar.
In the meeting, private-sector council members, including Masakazu Tokura, chief of Japan's largest business lobby Japan Business Federation, called on the government to take measures to encourage companies to raise wages to mitigate the impact of rising prices.
Wage growth in Japan remains sluggish, compared to other countries, with a 1.86 percent hike among major companies in 2021, according to data from the Japan Institute for Labor Policy and Training.
Steps to spur aggressive investment in human resources will also be vital to put the world's third largest economy back on a sustainable growth track, the private-sector members said.
Kishida said the government will seek to boost the momentum of wage increases to ensure that it becomes a more solid and sustainable trend.
To prevent consumption from sliding amid surging prices of essential items, the government has pledged to take necessary steps, including giving reward points to households that reduce electricity consumption and aiding farmers grappling with high fertilizer costs.
The government plans to spend a total of about 260 billion yen ($1.9 billion) on the countermeasures by tapping into a reserve fund.
For fiscal 2023, the Cabinet Office predicted a CPI increase of 1.7 percent. It expects crude and other energy prices will remain high.
The Bank of Japan has estimated prices, excluding volatile fresh food items, will rise 2.3 percent in the current fiscal year.
The downward revision of real GDP was attributed to weaker-than-expected consumer and capital spending. The government cut its private consumption outlook to 3.6 percent growth from a 4.0 percent rise and reduced its capital spending projection to a 2.2 percent increase from the previous 5.1 percent.
Japan's nominal GDP growth forecast was slashed to 2.1 percent from 3.6 percent for the current fiscal year, while the government estimates the country's real GDP to grow 1.1 percent to 554.7 trillion yen in fiscal 2023, exceeding a record 554.3 trillion yen in fiscal 2018.
The key economic council includes members of Kishida's Cabinet, BOJ Governor Haruhiko Kuroda and business leaders.
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