July 26, 2018 / 11:56 PM / 4 months ago

Tokyo inflation ticks up in July, but BOJ's key target remains elusive

TOKYO (Reuters) - Tokyo’s core consumer prices rose 0.8 percent in July from a year earlier, accelerating for a second straight month but offering little comfort to the Bank of Japan as it struggles to reach its elusive 2 percent inflation target.

A woman with a baby buggy looks at items outside a discount store at a shopping district in Tokyo, Japan, February 25, 2016. REUTERS/Yuya Shino

The data for Tokyo, considered a leading indicator for nationwide price trends, heightens the chance the central bank will concede next week that inflation could fall short of its target for as long as three more years.

The increase in Tokyo’s core consumer price index (CPI), which includes oil products but excludes fresh food prices, was slightly higher than a median market forecast for a 0.7 percent gain. It followed a 0.7 percent gain in June.

Analysts say several technical factors, such as a slight sample change for rent, pushed up Tokyo inflation but will likely not give much of a boost to nationwide prices.

“Nationwide core consumer inflation may hit 1 percent as early as in July, but mostly due to rising energy costs,” said Mari Iwashita, chief economist at Daiwa Securities.

“The BOJ may make minor tweaks to its policy framework at next week’s rate review. But underlying inflation isn’t strong enough to prompt it to raise interest rates yet,” she said.

The Tokyo core-core price index, which excludes both energy and fresh food costs, was up 0.5 percent in July, up a touch from a 0.4 percent increase in June, the data showed.

The Tokyo CPI data, available a month before nationwide figures, drew more market attention than usual as it precedes a closely-watched BOJ policy meeting that kicks off on Monday.

Sources have told Reuters that the BOJ, facing subdued inflation, may consider steps to make its policy framework more sustainable on the view it will take more time to meet its price goal.

Data out last week showed nationwide core consumer prices rose 0.8 percent in June from a year earlier, moving up slightly from the previous month but was due largely to higher energy costs.

An index stripping away energy and fresh food costs showed nationwide inflation slowed for the third straight month in June, a setback for the BOJ’s efforts to meet its inflation target via aggressive monetary easing.

Reporting by Leika Kihara; Editing by Eric Meijer

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