Japan’s December consumer inflation is nearing a 2-year high, according to Reuters

Kantaro Komiya and Leika Kihara

TOKYO (Reuters) – Japan’s main consumer prices rose 0.5% in December from a year earlier, rising for the second month in a row at almost the fastest pace in two years, a sign of rising inflationary pressures on rising fuel and commodity costs.

The rise is unlikely to lead to the immediate lifting of the monetary stimulus by the Bank of Japan, as inflation is still well below its 2% target and driven by external factors rather than strong domestic demand.

But the central bank will face the challenge of overcoming market speculation to get out of the ultra-easy policy, as some analysts expect certain factors to raise consumer inflation to 2% in the coming months.

The rise in the Consumer Price Index (CPI), which excludes volatile fresh foods but includes energy costs, is up 0.6% on average compared to the market forecast. It coincided with a 0.5% rise in November, the fastest gain since February 2020, government data showed on Friday.

Japan is not for sale because wholesale prices have risen on record due to the impact of global commodity inflation, prompting more companies to push up prices and changing the public’s perception that deflation will continue.

The BOJ raised its price forecasts on Tuesday, but said it was in no hurry to change its ultra-loose policy in a view that the recent cost-driven inflation will provide a stint.

Haruhiko Kuroda, BOJ governor, said the focus of the bank would be to raise the purchasing power of homes where wages will rise enough to raise prices for companies and help accelerate inflation in a sustainable way.

It is doubtful, however, whether the companies will comply with demands to raise salaries under Prime Minister Kumida Fumiko, as very high input costs and rising new cases of the Omicron coronavirus variant are squeezing profits.