Japan's Inflation Rate Doubles to 0.8% as Oil Surges

Japan's inflation rate doubled in December to the fastest in more than nine years, as companies passed rising oil and commodity costs to consumers.
TradingEconomics.com, Bloomberg 1/24/2008 6:15:46 PM

Core consumer prices, which exclude fresh food, climbed 0.8 percent from a year earlier, the statistics bureau said today in Tokyo. The median estimate of 44 economists surveyed by Bloomberg News was for a 0.6 percent gain.

Dairy farmers on the northern island of Hokkaido yesterday raised the price of milk by 3 percent because of higher costs of feed for cows. Higher energy and materials expenses hurt growth by eroding corporate profits and spending by consumers whose wages are falling.

The yen traded at 107.23 per dollar at 10:38 a.m. in Tokyo from 107.12 before the report was released, and is heading for a weekly decline against the world's 16 most-active currencies after global stocks rebounded. The yield on Japan's 10-year bond rose 6 basis points to 1.445 percent.

Investors reduced bets that the central bank will lower the key lending rate from 0.5 percent later this year. There is a 45 percent chance of a cut by July, down from 67 percent before the inflation report, according to calculations by JPMorgan Chase & Co. using overnight interest-rate swaps.

Bank of Japan policy makers said it's likely growth will slow and inflation will quicken in the short term, according to minutes of their December policy meeting released in Tokyo today. Central bank Governor Toshihiko Fukui said this combination makes it ``difficult'' to decide interest-rate policy.

Consumer confidence fell to a four-year low in December and wages only rose in two of the first 11 months of last year.

Core consumer prices were unchanged in 2007, today's report showed. Prices started rising in October after falling for eight months. Even before then, they either hovered near zero or fell since March 1998, when an increase in the country's sales tax pushed gains to 1.8 percent.

Tokyo's core prices, a harbinger of the nationwide index, rose 0.4 percent in January from a year earlier, following a 0.3 percent gain in December.

Excluding energy as well as food, nationwide consumer prices fell 0.1 percent in December. By that measure, they've failed to rise for nine years.