November 1, 2017 / 10:17 AM / a year ago

BOJ's new 'cost-push' index suggests price pressures building

TOKYO (Reuters) - A new Bank of Japan indicator that measures the costs of goods and services not yet passed through to the wider economy showed on Wednesday price pressures are growing, even as consumer inflation remains subdued.

The BOJ’s “cost-push” indicator, published in a central bank report, measured around 0.4 percent in August, according to the central bank’s latest outlook report on the economy and prices.

The figure suggests that the year-on-year consumer price inflation excluding fresh food and energy, which was 0.2 percent in August, would accelerate by 0.4 of a percentage point in six months to 0.6 percent.

“Firms have been making efforts to absorb a rise in labor costs by increasing labor-saving investment and streamlining their business process, while limiting wage increases ... mainly to wages of part-time employees,” the BOJ said in the report.

“However, the upward pressure on prices stemming from the rise in firms’ costs has been increasing steadily,” it said, citing the uptrend in earnings for part-timers and higher input costs resulting from a weaker yen.

The BOJ remains confident it will achieve its target of 2 percent consumer inflation, including energy costs, by the fiscal year starting in April 2019, even as it remains well off the mark.

The central bank kept policy steady on Tuesday and Governor Haruhiko Kuroda said there was no change to its stance of maintaining strong monetary easing to hit the price target at the earliest possible date.

Reporting by Chris Gallagher; Editing by Sam Holmes

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