BoJ says that if recent price rises in food prices were to persist, they could exert a sustained upward impact on overall consumer prices
- Output gap has been on an improving trend, labour market conditions remain extremely tight, and wages are rising moderately.
- Firms continue to pass on higher wages. A mechanism in which wages and prices rise moderately in tandem has been taking hold.
- Increases in energy can affect underlying inflation in both directions.
- Need to pay attention to the possibility that upward price pressures from rising crude may have strengthened as firms become more proactive in hiking prices and wages.
- Given changes in firms' price-setting behaviour, prices may now be more susceptible to JPY depreciation.
Context
The BoJ's latest assessment highlights that persistent food price rises could sustain upward pressure on consumer prices, indicating a potential shift in inflation dynamics. This may suggest a more vigilant policy stance as they acknowledge changing price-setting behaviors and the influence of JPY depreciation. Overall, this implies a greater scrutiny on inflation going forward, which could influence rate decisions amidst a tight labor market and increasing wages.
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