Japan October Consumer Prices Up 3.6%... Largest Increase in 40 Years (Comprehensive)

Impact of Yen Depreciation and Energy Price Surge
Inflation Expected to Slow in Q4
Next Spring's Wage Negotiations Are Key

[Image source=Yonhap News]

[Asia Economy Reporter Lee Ji-eun] Japan's consumer prices have reached their highest level in 40 years due to the depreciation of the yen and the surge in energy and raw material prices. However, the market expects the Bank of Japan (BOJ) to maintain its existing accommodative monetary policy, citing the risk of an economic recession.

The Ministry of Internal Affairs and Communications announced on the 18th that the October Consumer Price Index (excluding fresh food) rose 3.6% compared to the same period last year. This is the largest increase in 40 years and 8 months since February 1982 (3.6%). Japan's consumer price inflation rate had been in the 2% range for five consecutive months from April, but exceeded 3% in September.

The surge in energy and raw material prices due to the Ukraine war, combined with the sharp decline in the yen's value, is analyzed to have fueled the price increase. Among the 522 items surveyed, 406 showed an increase compared to the same month last year, up from 385 the previous month.

Specifically, food prices excluding fresh food rose 5.9%. Energy prices increased by 15.2%, a smaller rise compared to the previous month (16.9%), but still recorded double-digit growth for 13 consecutive months. City gas rates rose 26.8%, and electricity rates increased 20.9%.

Bloomberg observed that although Japan's inflation rate has reached its highest level in 40 years, BOJ Governor Haruhiko Kuroda is unlikely to change the direction of monetary policy. Governor Kuroda argues that the current inflation is only temporary and that ultra-loose monetary policy must continue for the economy, triggered by the COVID-19 recession, to recover.

Experts also predict, in line with Governor Kuroda's outlook, that Japan's inflation will gradually slow down in the fourth quarter. Bloomberg economist Masujima Yuki stated, "The core Consumer Price Index in Japan is expected to remain in the 3.5% range in the fourth quarter," adding, "In the first quarter of next year, inflation is expected to slow down to 2.8% in the core Consumer Price Index due to the Japanese government's subsidies for electricity and gas bills."

However, some argue that it is still difficult to conclude that inflation will slow down, as wage negotiations are scheduled for next spring. The Nihon Keizai Shimbun focused on Japan's core-core Consumer Price Index, which excludes food and energy, recording 2.5%, and predicted, "If wage increases become full-scale next year, the Bank of Japan will be forced to change its monetary easing policy."

This content was produced with the assistance of AI translation services.