TOKYO-Japan's consumer inflation picked up in September, backing the case for the central bank to raise interest rates again by the end of the year.
Excluding fresh food, consumer prices climbed 2.1% in September from a year earlier, compared with August's 1.7% rise, government data showed Friday. That matched the forecast in a poll of economists by data provider Quick and marked the first time in nine months that price growth exceeded the 2% target.
The results will likely reinforce market views that the Bank of Japan will tighten policy settings in December, bringing the benchmark rate up by another 25 basis points to 1.5%.
"That acceleration was noteworthy, not least because it occurred despite a sharp slowdown in fresh food inflation, and continued energy deflation," which partly reflects the effects of government energy subsidies, said Abhijit Surya, an economist at Capital Economics.
The bank's policy board is widely expected to stand pat when it gathers next week as it examines the effects of previous hikes, including in September. It will also release updated economic and price projections in its quarterly outlook report alongside the decision.
"While the bank previously tolerated rising underlying inflation toward its 2% target, it must now place greater weight on upside price risks once that target is reached," said Daiwa Securities economist Kento Minami.
"If the outlook report continues to highlight upside risks to prices, that would provide a basis for considering an early interest-rate hike," he added.
A persistently weak yen and higher global oil prices are raising the cost of imported raw materials, keeping steady upward pressure on consumer prices in Japan. In addition, the BOJ has cited demand tied to the artificial-intelligence boom as a potential factor boosting inflation. Markets are currently pricing in nearly an 80% chance of tightening in December.
Now that underlying inflation is close to the bank's 2% target, BOJ Gov. Kazuo Ueda has signaled a strategic shift, noting that the central bank needs to pay greater attention to upside price risks.
Friday's data showed that consumer inflation, which excludes fresh food and energy, jumped to 2.4% in September from 1.9% in August.
Economists say the key to sustainable mild inflation and the ultimate rate path for the BOJ lies in the upcoming shunto spring wage negotiations, which will test the strength of the complementary growth between prices, income and spending that the central bank has been trying to create.
In a draft of its strategy for the annual wage negotiations released Thursday, Japan's top labor union group urged its members to seek a pay raise of 6%, with 5% set as a floor.
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