Japan's Inflation Exceeds 2% for Second Month

Japan's consumer-price inflation exceeded 2 percent for a second month as companies passed on costs of food and other daily necessities.

Core prices, which exclude fresh food, climbed 2.4 percent in August from a year earlier, the same pace as July, the statistics bureau said today in Tokyo.

The fastest inflation in a decade won't spur an interest- rate increase by the Bank of Japan because prices gains are likely to moderate as oil costs drop. Policy makers will probably keep the key rate at 0.5 percent, the lowest in the industrialized world, as it monitors the effect of the global financial crisis on Japan's shrinking economy.

The core inflation rate has surpassed wage growth for four months, stripping consumers of their spending power and pushing their sentiment to a 26-year low. The economy contracted last quarter as exports and personal spending dropped.

Some economists say consumer inflation will hover around 2 percent even as commodity costs tumble because companies have yet to make up for accumulated losses incurred by fuel and material cost increases and will try to pass on costs to clients.

The central bank expects core consumer prices to moderate gradually as oil prices decline, Governor Masaaki Shirakawa said last week. Even so, the bank should carefully watch whether consumers' inflationary expectations and companies' price- setting behaviors will change, he said.

The central bank has kept the key overnight lending rate at 0.5 percent since doubling it in February 2007. It shelved a policy of gradual rate increases in April.

Excluding food and energy, prices were unchanged in August from a year earlier after increasing 0.2 percent in July. Core prices in Tokyo, a harbinger of nationwide inflation, advanced 1.7 percent in September from a year earlier, faster than the 1.5 percent increase of August, today's report showed.


TradingEconomics.com, Bloomberg.com
9/25/2008 5:20:52 PM