Japan inflation ticks up as oil rises, BOJ target remains elusive

By Leika Kihara

TOKYO (Reuters) – Japan’s core consumer prices rose 1.0 percent in September from a year earlier, government data showed, a sign a moderate economic expansion continues to underpin inflation – but not yet enough to push it near the central bank’s 2 percent target.

The increase was driven mostly by higher oil costs with other items showing only feeble price rises, underscoring the challenge the Bank of Japan faces in achieving its elusive price goal as the economy shows some signs of peaking.

The rise in the nationwide core consumer price index (CPI), which strips away the effect of volatile fresh food costs, matched a median market forecast and slightly faster than a 0.9 percent gain in August. The pace of increase was the fastest since February, when core CPI also rose 1.0 percent.

The so-called core-core consumer price index (CPI), a more closely watched gauge the BOJ uses that strips away the effect of both volatile food and energy costs, stood at 0.4 percent in September, in line with the previous month.

Stubbornly soft inflation has dashed the BOJ’s hopes that solid economic growth will translate into higher prices, and could delay the central bank’s exit from ultra-loose policy.

Japan’s economy rebounded in the second quarter from a contraction in the first three months of this year thanks to robust business spending.

But escalating trade frictions and a series of natural disasters that disrupted supply chains cloud the outlook for the export-reliant economy, with some analysts projecting a slight contraction in the July-September quarter.

Uncertainty over the economic outlook adds to challenges for the BOJ, which has struggled to fire up wages and prices despite years of heavy money printing.

The inflation data will be among factors the central bank will scrutinize at its rate review on Oct. 30-31, when it conducts a quarterly review of its growth and price projections.

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