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(CEP News) - Though Japanese CPI came in higher than expected for July, economists are saying the increase can be overwhelmingly attributed to energy costs. CPI will probably head downwards, they say, and this month's figures won't get any reaction from the Bank of Japan going forward.
Matt Robinson, economist with Moody's economy.com said that although this is the first time core inflation raised above the 2% mark since the 1980s, the rise is based on energy prices. Hiroshi Shiraishi, economist with Lehman brothers also took note of the rise above the 2% benchmark, but like Robinson says it because of the cost of energy. "What's happening now is really imported inflation, or cost-push inflation," he said. "There's little sign of second round effect on domestic prices." Core inflation rose 2.4% in July, higher than expectations for a 2.3% increase and the prior month's increase of 2.0%. Subtract energy prices, and inflation only rose by 0.2%, still higher than the 0.1% forecast and 0.1% reading last month. Kyohei Morita, economist with Barclays Capital Research said that he thinks inflation will only go down from here. To back his claim he points to more timely data released - Tokyo inflation for August. Contrary to the national figure's direction, core Tokyo CPI declined to 1.5% from a prior reading of 1.6%. "I think (Tokyo CPI) is more important than the July nationwide CPI," he said. He said the decline of inflation in Tokyo this past month is an indication of where national numbers will turn going forward. Robinson agreed that inflation should be on its way down. "Once we see some of the oil-driven inflationary pressures dissipate, we should see core inflation ease back down to the 0-2% band," he said. Looking to the Bank of Japan's reaction, all three economists agreed there will be none. "I don't think they can (react)," said Robinson. "They're confronted by decade high inflation on the one hand and yet a dramatically slowing economy on the other hand. Second quarter growth was extremely weak, and some of the partial indicators are suggesting the third quarter is going to be quite weak as well." "That's not the environment in which the bank of Japan can be raising interest rates," he said. Shiraishi agreed, saying that the bank is currently taking a 'wait and see' stance and probably won't hike rates until well into 2009. By Megan Ainscow,
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