TOKYO — Core inflation in Japan’s capital accelerated in December while services inflation held steady, data showed on Friday, keeping alive market expectations for a near-term interest rate hike.
Factory output, however, fell in November for the first time in three months, suggesting that soften-ing overseas demand was taking a toll on the export-reliant economy.
The data will be among factors the Bank of Japan (BOJ) will scrutinize at its next policy meeting on Jan. 23-24, when some analysts expect it to hike short-term interest rates.
The Tokyo core consumer price index, which excludes volatile fresh food costs, rose 2.4 percent in De-cember from a year earlier, compared with a median market forecast for a 2.5-percent gain.
It followed a 2.2-percent year-on-year rise in November.
Another index that strips away both fresh food and fuel costs, which is closely watched by the BOJ as a better gauge of demand-driven inflation, rose 1.8 percent in December from a year earlier after increasing 1.9 percent in November, the data showed.
Service-sector prices rose 1.0 percent in December after a 0.9-percent gain in November, underscoring the BOJ’s view that sustained wage gains are prodding firms to charge more for services.
“There’s a chance higher wages will be passed onto services prices, which is positive for the BOJ in normalizing policy,” said Masato Koike, senior economist at Sompo Institute Plus.
The Tokyo inflation data, considered a leading indicator of nationwide trends, is closely watched by policymakers for clues on how much progress Japan is making toward durably meeting the BOJ’s 2-percent inflation target — a prerequisite for more rate hikes.
But some analysts saw signs of weakness in Japan’s economy and price momentum that could delay the BOJ’s rate-hike timing.
The increase in Tokyo inflation was driven largely by higher utility bills and the price of food like rice, which could weigh on consumption and discourage firms from hiking prices further.
Separate data released on Friday showed factory output fell 2.3 percent in November from the previ-ous month due to shrinking production of chip equipment and automobiles, casting doubt on the strength of Japan’s fragile economic recovery.
“When stripping away the effect of rising utility bills, there’s no sign of strength in inflation,” said Toru Suehiro, chief economist at Daiwa Securities, who expects the BOJ to hold off on raising rates in Janu-ary.
The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25 percent in July on the view Japan was making steady progress on meeting its inflation goal.
The BOJ has held rates steady since then, including at last week’s meeting. Governor Kazuo Ueda said he preferred to wait for more data to gauge next year’s wage momentum and for clarity on the incom-ing US administration’s policy before hiking again.
All respondents in a Reuters poll published earlier this month expected the BOJ to hike interest rates to 0.5 percent by March next year. Its decision to keep rates steady this month has heightened market attention on whether a hike would come at its next meeting on Jan. 23-24, or a subsequent rate re-view on March 18-19.
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