Japanese inflation remained steady in April when the core consumer price index, excluding fresh food, rose by 0.5 per cent. The rise, generally in line with market consensus, is the sixth month that inflation, as measured by the core CPI, has been at zero or above.
Recent gross domestic product data also showed that, for the first time, the domestic demand deflator, considered a broader indicator of price movements, had finally clambered up to zero.
Friday’s CPI data will reassure the central bank that inflation remains on a steady course. A dip in the CPI, which one or two commentators had predicted, would have complicated any attempt to raise interest rates from zero over the next few months.
Observers are expecting the BoJ to raise rates to 0.25 per cent in the next few months, with some predicting an increase as early as June.
From August, the CPI data will be affected by a rebasing exercise, which could shave up to 0.3 points from the headline number. Some commentators say the bank might want to establish its ability to raise rates before then.
Richard Jerram, economist at Macquarie Securities, said in a note this week that the recovery, the second-longest since the war, was evenly balanced, with domestic reflation matching solid exports.
Recent data, he said, “show a revival in consumer-related services. This is consistent with the improvement in wage income that is driving stronger consumer spending.”
According to Friday’s CPI data, higher costs of fuel, light and water, up 4.0 per cent, were a leading factor in price rises. Transport costs also rose, by 1 per cent, with fees for education — including cram schools and language classes provided by companies such as Nova — up 0.7 per cent.
The cost of furniture, household utensils and medical care fell.
Provisional CPI data for Tokyo in May, a pointer to nationwide figures, rose 0.4 per cent.
The BoJ is predicting that the CPI will rise 0.6 per cent this year and 0.8 per cent in the year to end-March 2008.