(Bloomberg) -- The cost of living in Tokyo increased by the biggest margin in more than two years this month as the impact of surging oil prices prompted another acceleration of inflation.
Consumer prices excluding fresh food climbed 0.8% in the capital in March from a year earlier, according to the ministry of internal affairs Friday. Economists had expected an increase of 0.7%. Price moves in Tokyo are a leading indicator for national inflation.
Even with the acceleration, inflation in Tokyo still remains well below the Bank of Japan’s 2% target and is unlikely to nudge Governor Haruhiko Kuroda to follow his global peers in tightening policy for now.
The governor said last week that Japan’s inflation dynamics are very different from Europe and the U.S. and insisted there was no need to follow the rate hikes of global peers including the Federal Reserve that are looking to cool price growth.
With monetary stimulus set to remain in place, attention is shifting to Prime Minister Fumio Kishida and what he might do to minimize the economic pain of higher energy prices among businesses and households before elections this summer.
The March figures showed energy prices rose 26% from a year earlier, boosting overall prices by 1.2 percentage point, cushioning the temporary drag from cell phone fee cuts. The ongoing war in Ukraine is set to keep oil prices volatile.
Japan’s nationwide inflation is expected to pick up further speed as the yen continues to weaken, a factor that will increase import prices. The impact of sharp mobile fee reductions last year will start to drop off from April when economists expect a jump in price readings.
Starbucks (NASDAQ:SBUX) Japan joined the growing list of businesses raising prices this week. It will raise bean prices for the first time in 16 years on the cost of higher raw materials, according to a statement.
What Bloomberg Economics Says...
“We expect Tokyo’s inflation to accelerate to 2% in April on higher prices of energy and imported food, inflated by a drop in the yen.”
-- Yuki Masujima, economist
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While quasi-emergency measures for the pandemic were lifted from all regions this week, policy makers are closely looking at how rising energy prices might keep a lid on pent-up demand and the purchasing power of households known for their entrenched deflationary mindset.
About 85% of respondents in a survey by Jiji said price increases in gasoline and daily necessities are affecting their standard of living.
Local media reported this week that Kishida is going to call for measures next week to address the impact of higher energy prices and inflation.
The Sankei newspaper reported Tuesday that the government and ruling coalition are preparing to draw up a stimulus package worth more than 10 trillion yen ($82 billion).
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