Japan Inflation Rises; Private Sector Stagnates

Japan’s consumer price inflation rose for the first time in four months in October and continued to remain well above the 2 percent target, official figures revealed on Friday.

Preliminary results of the the Purchasing Managers’ survey showed that the private sector activity stalled in November, ending a ten-month sequence of growth, as the strength in the service sector was offset by the contraction in manufacturing.

Inflation that excludes fresh food rose marginally to 2.9 percent from 2.8 percent in September, the Ministry of Internal Affairs and Communications reported.

This was slightly below economists’ forecast of 3.0 percent but exceeded the 2 percent target for the 19th straight month. The Bank of Japan has forecast inflation to hit the target in 2025.

Overall consumer price inflation climbed more markedly to 3.3 percent in October from 3.0 percent in September.

Month-on-month, the consumer price index gained 0.9 percent after a 0.3 percent rise.

However, excluding fresh food and energy, core inflation eased to 4.0 percent from 4.2 percent a month ago.

The overall increase in consumer prices was largely driven by the 14.1 percent annual growth in fresh food prices.

Food prices had increased only 9.6 percent in September. At the same time, energy prices posted a slower decline of 8.7 percent in October.

Capital Economics’ economist Marcel Thieliant pointed out that fuel and utility subsidies are set to end by early next year. Further, goods inflation is still very high and services inflation still accelerating.

ING expects inflation to take another year to return to the Bank of Japan’s 2 percent target.”

The au Jibun Bank flash composite output index fell to 50.0 in November from 50.5 in October.

The manufacturing Purchasing Managers’ Index, or PMI, fell to 48.1 from 48.7 in the previous month. This was the biggest fall since February.

The services PMI was little-changed at 51.7 in November compared to 51.6 in October.

At composite level, demand conditions remained muted and outstanding business was unchanged in October.

Employment grew at a weaker pace. Companies were more positive about future output. Further, there was another softening in price pressures.

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