The core consumer prices in Japanese capital Tokyo, a leading indicator of nationwide inflation, rose 0.5 per cent in October from a year earlier, data showed on Tuesday.
The data offered the first clue on how a sales tax hike that kicked off in October could affect price growth, which remains subdued despite years of heavy money printing by the central bank.
The rise in the core consumer price index (CPI) in Tokyo, which includes oil products but excludes fresh food prices, was slower than a median market estimate for a 0.7 per cent gain and flat from the pace of increase in September.
“Companies aren’t translating the tax hike impact onto consumers as much as expected,” said Mari Iwashita, chief market economist at Daiwa Securities.
“The BOJ is likely to trim its inflation forecast at its quarterly report for October,” she said, adding that the nationwide core CPI is likely to hit 0.5 per cent in October, reports Reuters.
Japan’s government proceeded with a twice-delayed increase in the sales tax rate to 10 per cent from 8.0 per cent in October as part of efforts to rein in the country’s huge public debt.
To ease the burden from the higher levy, the government started to offer discounts or make childcare services free of charge from October.
When excluding the impact of the tax hike and the childcare discount, core consumer inflation in Tokyo hit 0.34 per cent in October to mark the slowest pace in more than two years, according to the government’s estimate.
Years of ultra-loose policy has failed to fire up inflation to the BOJ’s 2.0 per cent target, forcing the central bank to maintain its massive stimulus programme despite the strain on financial institutions’ profits from near-zero interest rates.
In forecasts made in July, the BOJ was counting on nationwide core consumer inflation hitting 1.0 per cent in the current fiscal year ending in March 2020, including the effect of the higher tax.
The central bank is likely to trim the inflation forecast at the October quarterly report, which will be issued after a rate review on Thursday, sources have told Reuters.
But it is leaning toward keeping policy steady as stable markets, a truce in US-China trade talks and robust domestic demand give it room to save its dwindling ammunition to fight the next recession, they said.