Consumer inflation in Japan accelerated to 3.0 percent in fiscal 2022 through March, the fastest pace in 41 years and above the Bank of Japan's 2 percent target, in what the central bank views as a blip caused by higher import costs and a weaker yen, government data showed Friday.
In March, the nationwide core consumer price index, excluding volatile fresh food items, climbed 3.1 percent from a year earlier. Government energy subsidies helped eased some inflationary pressures but the key gauge of inflation still remained above the BOJ target for a year.
Japan has seen more evidence of broadening price hikes as companies are passing on higher costs to consumers. Prices are expected to rise further in coming months, especially for food items, in a blow to households.
The last time the core CPI rose as sharply as the previous business year was in fiscal 1981 when it increased 4.0 percent.
The BOJ expects the core CPI will undershoot 2 percent in fiscal 2023 from April as the year-on-year effect will peter out. New Governor Kazuo Ueda, who will hold his first policy-setting meeting next week, has said ultralow rates are necessary to promote more wage hikes by companies.
Both food and energy prices saw their sharpest gains since 1980.
Food prices jumped 5.4 percent while energy prices, including for kerosene and gasoline, surged 12.8 percent, the Ministry of Internal Affairs and Communications said.
In March alone, however, energy prices dropped 3.8 percent, as the government is curbing utility bills.
Without government efforts to lower prices for electricity, city gas, gasoline and kerosene, the core CPI would have risen around 4 percent in March, according to the ministry.
So-called core-core CPI, excluding both fresh food and energy prices, leaped 3.8 percent.
The BOJ is scheduled to release a fresh outlook report on inflation and economic growth at the end of the policy meeting on April 28. The central bank is considering forecasting the core CPI will rise around 2 percent in fiscal 2025, sources familiar with the matter said earlier.
"The underlying price trend is strengthening and households are increasingly feeling it, too," said Saisuke Sakai, a senior economist at Mizuho Research & Technologies.
Mizuho expects the core CPI to continue rising around 3 percent year-on-year in the coming months, projecting that real wages will not turn positive until the latter half of fiscal 2023 despite robust pay hikes promised during annual labor-management negotiations for the year.
"While the pace is still limited, price increases are also seen in the services sector, which are also due largely to rising raw material costs. In the longer term, service providers will have to continue coping with labor shortages and pass on higher fixed costs (for securing labor) to consumers," Sakai added.
Financial markets expect the BOJ, which appears in no hurry to raise interest rates, will have to tweak its policy as the side-effects of protracted monetary easing have emerged. Critics see the need to make its goal of attaining 2 percent inflation as soon as possible more flexible.
Aggressive interest rates hikes by the likes of the U.S. Federal Reserve have cast a pall over the strength of global economic growth, with recent market jitters over U.S. and European banks adding to concerns.
"We expect the effects of the rapid yen depreciation (since last year) to dissipate toward this fall," said Toru Suehiro, chief economist at Daiwa Securities.