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Japanese inflation hit 41-year high in 2023

THE NIKKEI via scoutAsia

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January 19, 2024 1 min read
Japanese inflation hit 41-year high in 2023

Japan‘s core consumer price index climbed 3.1% last year to mark its biggest gain since 1982, official data showed on Friday, driven up by rising food costs and as a weaker yen made imports more expensive.

For the month of December, the core index, which excludes fresh food, increased 2.3% from a year earlier, down from 2.5% in November and surpassing the Bank of Japan‘s inflation target of 2% for the 21st straight month.

The monthly data matched economists’ expectations in a recent Reuters survey.

Hotel fees grew 59% in December, while electricity bills dropped 20.5%, according to the Ministry of Internal Affairs and Communications.

December’s data showed there is a “slowing trend” in inflation, said Kanako Nakamura, an economist at Daiwa Institute of Research, noting that the food price hikes from 2022 — driven by higher costs for imports, domestic logistics and labor — has subsided.
The latest inflation figures come as Japan‘s government urges businesses to raise wages ahead of annual spring negotiations between employers and labor unions.

The country’s average real wages — adjusted for inflation — dropped year-on-year for the 20th consecutive month in November, indicating that inflation continues to overshadow wage hikes.

The Japanese Trade Union Confederation (Rengo), the country’s largest group representing various industry unions, is demanding a wage increase of 5% or more in the upcoming negotiations.

Economist Nakamura said she expects that “[this year’s] wage increase rate will be higher than last year’s,” adding that there will be a “cycle in which both wages and prices rise.”

Daiwa expects an average core inflation of 2.8% for the fiscal year starting April this year,” Nakamura added.

Koya Miyamae, a senior economist at SMBC Nikko Securities, said there is “a possibility that real wages will leave the negative range” by the latter half of 2024. With this year’s goal of surpassing last year’s levels in the spring negotiations, the wage raise trend is most likely “not temporary,” he added.