TOKYO: Consumer prices in Japan, a leading indicator of nationwide inflation, rose 2.8 per cent in September from a year earlier, exceeding the central bank's 2 per cent target for a fourth month and marking the biggest gain since 2014.
The Bank of Japan believes that recent cost-push price increases will be temporary and that the data reinforced market expectations that nationwide consumer inflation will reach 3 per cent in the coming months.
The Tokyo core consumer price index, CPI, which includes oil products, but excludes fresh food prices, was in line with the median market forecast and followed a 2.6 per cent gain in August. It had a 2.8 per cent gain in June 2014.
The Tuesday data showed that more firms were passing on rising raw material costs to households, as well as increasing prices for a wide range of goods and services, from electricity bills and chocolate to sushi and hotel bills.
The price rises were broadening, according to the data. Takeshi Minami, chief economist at Norinchukin Research Institute, said consumer inflation will likely exceed 3 per cent in October.
There is still a chance that inflation will gradually moderate next year due to peak energy costs and the chance that consumers won't be able to swallow further price hikes. The data is a key factor that the BOJ will look at when it produces new quarterly growth and inflation forecasts at its next policy-setting meeting on October 27 and 28. The nationwide CPI data for September is due on October 21.
Despite the recent rise in inflation, the BOJ Governor Haruhiko Kuroda has pledged to keep monetary policy relatively-loose despite the recent rise in inflation, which he sees as driven by temporary factors such as higher fuel and raw materials costs rather than strong consumption.
Some BOJ policymakers warned last month that inflation may overshoot expectations, highlighting the challenge Kuroda faces in justifying ultra-low interest rates.
The BOJ's dovish stance, which makes it an outlier among a wave of central banks raising rates to combat rising inflation, has pushed the yen to 24 year lows and inflated the cost of importing already expensive fuel and raw material.
The central bank is quietly phasing out of Kuroda's radical stimulus programme, as the BOJ is set to keep interest rates low, but the pace of money printing is slowing.
Japan's monetary base, or amount of cash circulating in the economy, fell 3.3 per cent in September from a year earlier in the year to mark the first year-on-year decline since April 2012, data showed on Tuesday.
The drop highlights a turning point in Kuroda's quantitative easing program in 2013 that aimed at firing up inflation to his 2 per cent target with heavy money-printing.