Tokyo’s Core CPI at +0.5% in October, Despite Sales Tax Hike

The sales tax hike implemented earlier this month appears to have had no effect on inflation so far. According to data released by the government, Tokyo’s core CPI came in at +0.5% in October, rising higher despite sales tax rate changing from 8% to 10%. However, the data came in below economists’ forecast, which was for a reading of +0.7%.

Change in core consumer prices in the national capital offers a key insight into the trend of inflation nationwide. Without taking the effects of the tax hike and childcare discount into consideration, Tokyo’s core CPI rose 0.34% higher in October, the slowest rate of growth seen in over two years.

The BOJ had estimated core consumer inflation to touch 1.0% in this fiscal year which ends in March 2020, despite the sales tax hike. While this data could support market expectations for the BOJ to roll out additional stimulus measures to boost the Japanese economy, given the thaw in US-China trade relations, it’s very possible that the central bank could hold its monetary policy steady in this month’s meeting.

Despite years of keeping its monetary policy extremely loose and interest rates in negative territory, Japan’s inflation has refused to pick up and near the BOJ’s official target of close to 2% so far. Will the BOJ revise its inflation forecast in the upcoming quarterly report?