Japan's core consumer prices surged 3.6 percent in October from a year earlier, the fastest pace in about four decades, government data showed Friday, providing fresh evidence of broadening price hikes that are hitting household spending and testing the Bank of Japan's resolve to maintain its ultralow rate policy.
The BOJ views recent inflation, prompted by higher energy and raw material costs and exacerbated by the weakening of the yen, will be short-lived. But the nationwide core consumer price index, excluding volatile fresh food items, remained above the central bank's 2 percent target for the past seven months.
The headline inflation figure rose for the 14th straight month, following a 3.0 percent gain in September. The last time core CPI gained 3.6 percent was in February 1982, around the time of the second oil crisis.
BOJ Governor Haruhiko Kuroda was unfazed by the data on Friday, reiterating that its ultralow rate policy is necessary to support the economy and achieve the inflation target supported by more robust wage growth.
"October was dubbed 'the month of price hikes' and the inflation data came out strong," said Yoshiki Shinke, senior executive economist at the Dai-ichi Life Research Institute
"Even when the impact of the 2014 consumption tax hike was felt, the largest gain in CPI was 3.4 percent. So the impact now is much bigger for households. For now, household spending is recovering after it was dented by the COVID-19 pandemic, but it's hard to expect consumers will ramp up spending without wage hikes," Shinke added.
An increasing number of Japanese companies have been hiking prices for everyday goods to pass on higher costs, with sharp gains in a variety of items from food to durable goods seen in October.
Food prices, excluding perishable items, surged 5.9 percent, the largest gain since March 1981, as many companies went ahead with price hikes in October, according to the Ministry of Internal Affairs and Communications.
Energy prices -- including electricity, city gas, gasoline and kerosene -- jumped 15.2 percent, down from the previous month's 16.9 percent but a bad omen for the winter heating season. The gain was still limited by the government's subsidy program to lower retail gasoline and kerosene prices.
The yen's precipitous fall against the U.S. dollar, blamed for the BOJ's persistently dovish stance, has added to the woes of resource-poor Japan by inflating import prices.
It was not just goods prices that have gained. Price hikes in the restaurant industry and the fading of a mobile phone factor helped lift service prices by 0.8 percent, the largest gain since August 1998, the ministry data showed.
The impact of cheaper mobile communication plans fell out of the data on a year-on-year basis in October, pushing up the relevant figure by 1.8 percent.
"At this point, we cannot say our 2 percent price stability target has been achieved stably and sustainably, accompanied by wage growth. It will unlikely be attained in the next fiscal year so monetary easing should continue," Kuroda told a parliamentary session shortly after the release of the CPI data.
Economists project the recent rise in core CPI will peak in the current quarter to December, as the government's program to reduce utility bills for households will begin next year.
The so-called core-core CPI, which strips away both energy and fresh food items, rose 2.5 percent.
Energy prices, which had spiked amid supply concerns caused by Russia's war on Ukraine, have been stabilizing. The yen's sharp depreciation appears to be taking a respite after currency market interventions by Japanese authorities and amid market expectations of less aggressive rate hikes by the U.S. Federal Reserve.
"It's worth noting that prices other than food and energy are also rising, though the service sector is still lagging behind," said Toru Suehiro, chief economist at Daiwa Securities Co
"The mindset of ordinary people may be turning 'deflationary' despite accelerating inflation, looking for cheaper everyday goods and cutting back on spending," he added.