Core consumer prices in Japan gained 4.0 percent in December from a year earlier, the highest level since 1981 and twice the pace envisaged by the Bank of Japan, as higher food and energy prices increasingly squeeze household budgets, government data showed Friday.
The core consumer price index excluding volatile fresh food items was above the BOJ's 2 percent inflation target for the ninth straight month, underscoring persistent inflationary pressure despite the central bank's view that it is only transitory.
In 2022, the core CPI gained 2.3 percent from a year earlier, the Ministry of Internal Affairs and Communications said, the fastest pace since 1991, when the effects of past consumption tax hikes are stripped away. The key gauge of inflation rose for the first time in three years.
The latest data came after the BOJ on Wednesday resisted market pressure to change its ultralow rate policy, a month after its surprise decision to raise its ceiling on long-term government yields jolted financial markets. The central bank expects core CPI to hit 3 percent in the year to March but undershoot its inflation target thereafter.
Still, price hikes have been prevalent in Japan, known for its past experience of years of chronic deflation, as companies face increased pressure to pass on higher raw material and other costs to consumers.
Marking the fastest pace in over 46 years, food prices jumped 7.4 percent in December. The prices of everything from hamburgers and potato chips to chocolate and mayonnaise rose.
Energy prices surged 15.2 percent. Electricity and city gas continued to see double-digit growth, up 21.3 percent and 33.3 percent, respectively, the data showed.
The government plans to reduce utility bills starting this year to ease the burden on households. After crude oil prices surged amid Russia's war in Ukraine, government subsidies to oil wholesalers to bring down retail prices have helped limit the gains in gasoline and kerosene prices, which increased 1.6 percent and 4.7 percent, respectively.
"The impact on CPI from higher energy prices was large in 2022 but contributions from food prices are now bigger," a government official said.
Nearly 7,400 food items are expected to see price hikes by April, of which 4,283 are planned for February, according to a recent survey by research firm Teikoku Databank Ltd.
"Inflation is accelerating at a much faster pace than wage growth and the very items that people buy frequently, such as food, are becoming more expensive. The hit to consumers is much bigger than what the headline CPI figure suggests," said Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute.
In a sign of recovery in the services sector that was hit hard by antivirus curbs amid the COVID-19 pandemic, services prices rose 0.8 percent in December.
Compared with the price trends for goods, however, the increase was still modest and economists say whether price hikes will spread to the services sector, accompanied by robust wage growth, is a key factor to watch when ascertaining if the BOJ's 2 percent target can be attained "in a stable and sustainable fashion."
Core-core CPI, which excludes both energy and fresh food items, rose 3.0 percent, a level unseen since 1991.
The recent bout of inflation has complicated the BOJ's efforts to persist with its ultralow rate policy that has weakened the yen and inflated import costs for resource-scarce Japan.
Markets have been rife with speculation that the BOJ will further tweak its policy, with eyes on who will succeed Haruhiko Kuroda, the current governor whose term will end in April. The yen has rebounded from its rapid fall against the U.S. dollar last year to its lowest point in three decades, partly because of expectations of a policy shift.
"Unless the yen weakens further and crude oil prices surge, we can expect the rise in CPI will become moderate later this year," Kodama said. "There are emerging signs of a change in how people see inflation, but I'm still not convinced whether it can be sustained over the longer term."