Japan’s Feb inflation to decline due to subsidies.

Japan’s Core Consumer Inflation Slowdown in February Slowed by Subsidies

In February of this year, Japan’s core consumer inflation fell significantly from the previous month, marking a slowdown from a 41-year high, as subsidies offered by the government for gas and electricity bills cushioned rising living costs.

In a recent poll conducted by Reuters, 20 economists predicted that the core consumer price index (CPI), which excludes volatile fresh food but includes oil products, would rise only 3.1% year-on-year in February of this year. This figure is lower than the 4.2% increase seen in January, which was the highest reading since December 1981 when the Middle East crisis had pushed Japan’s inflation to 4%.

Experts indicate that the wave of price hikes will likely continue, spreading from energy and food to daily consumables and paper products. Furthermore, there are growing doubts about the Bank of Japan’s view that recent cost-push inflation would prove to be temporary.

According to a note written by the Shinkin Central Bank economists, “Railway charges are also set to rise from March to April. As such, price hikes will likely continue well into the new fiscal year.”

Persistent price hikes will put the central bank under pressure to phase out its massive monetary stimulus. BOJ policymakers have repeatedly highlighted the importance of maintaining ultra-loose policy until inflation is seen sustainably hitting their 2% target along with solid wage growth.

Speculation among market players is that the BOJ will phase out or ditch its yield curve control (YCC) policy under incoming Governor Kazuo Ueda, who succeeds incumbent Haruhiko Kuroda in April.

In conclusion, while it is clear that subsidies offered by the government for gas and electricity bills have cushioned the rising living costs for residents in Japan, the wave of price hikes spreading from energy and food to daily consumables and paper products has raised doubts about the Bank of Japan’s view that recent cost-push inflation will prove to be temporary. As the central bank continues to face pressure to phase out its massive monetary stimulus, it remains to be seen how inflation will trend during the new fiscal year.#Japans #Feb #consumer #inflation #slowing #sharply #subsidies