Japan Wages Pressured by Fastest Inflation Since 2008

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Japan’s inflation accelerated to the fastest pace since 2008 last month, bringing the rate closer to policy makers’ target while threatening to erode household spending power unless employers boost wages.

Prices excluding fresh food rose 1.2 percent from a year earlier, the statistics bureau said today in Tokyo, more than a median forecast of 1.1 percent in a Bloomberg News survey of economists. A separate report showed industrial output rose 0.1 percent from October, less than forecast, in a risk for projections of an acceleration in economic growth this quarter.

Today’s data raise the stakes for employers girding for annual wage negotiations, with Prime Minister Shinzo Abe calling on them to boost salaries by more than the increase in the cost of living. Separate figures showed signs of a pickup in the labor market, with one job for every applicant -- the most since 2007.

“The rate of price rises will allow the unions to push for higher wages,” said Masamichi Adachi, a senior economist at JPMorgan Chase & Co. in Tokyo and a former central bank official. At the same time, “they may temper their demands because of concerns about keeping jobs -- so it’s difficult to see meaningful wage hikes.”

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Japan is now past the halfway point to the central bank’s 2 percent inflation target, as a weaker yen and higher costs of energy spur broader price increases. The government dropped a reference to deflation in a monthly economic report this week for the first time in four years. Wages excluding bonuses and overtime were unchanged last month from a year earlier, ending a 17th-month slide, separate data showed today.

Falling Yen

The yen weakened after the data were released, falling to 105 against the dollar for the first time since October 2008, and was trading up 0.1 percent at 104.75 at 3:44 p.m. in Tokyo.

Prices of consumer durables such as refrigerators and televisions rose for the first time since 1992, increasing 0.3 percent last month from a year earlier.

Food prices rose 1.9 percent in November from a year earlier helping to boost the overall consumer price index by 1.5 percent, according to today’s CPI release.

Kappa Create Holdings Co. increased the price of sushi plates at its restaurants to 105 yen ($1) from 92 yen because of the higher cost of fish stemming from a weaker yen, the Nikkei newspaper reported on Dec. 23.

“It’s hard to say this is good inflation,” said Azusa Kato, an economist at BNP Paribas SA in Tokyo. “The prices that have risen are related to the weakening yen, and the gains aren’t fueled by wage increases.”

Plane Fares

A 14.6 percent increase in the cost of overseas package tours contributed to an acceleration in price gains of leisure services, today’s data showed.

All Nippon Airways Co. will raise ticket prices on domestic flights in March by as much as 9 percent because the weaker yen is boosting fuel costs.

Bank of Japan Governor Haruhiko Kuroda, who began record easing in April, said this week core inflation is expected to hover at slightly above 1 percent through the first half of 2014. The BOJ will maintain stimulus until core inflation is stable at about 2 percent, he has said.

Deputy Economy Minister Yasutoshi Nishimura said in an interview today that it “may be difficult” to declare an end to deflation during 2014.

Wage Talks

Abe has held a series of meetings with business and union leaders since September in a campaign to persuade companies to raise wages. Negotiations around March between trade unions and management known as “shunto” -- or the spring wage offensive - - will be key for pay increases.

Honda Motor Co. Executive Vice President Tetsuo Iwamura said on Dec. 13 that the Japanese automaker will set pay based on reaching profitability targets, rather than government directives on how fast to increase compensation.

Retail sales rose more in November than economists projected, marking a fourth straight increase, other data released today showed. The climb may be due to spending ahead of a 3-percentage-point sales-tax increase that takes effect in April.

Japan’s economy is projected to expand an annualized 3.6 percent this quarter and 4.1 percent in the first three months of next year, before a one-quarter contraction in April-June after the consumption levy goes up.

To contact the reporters on this story: Chikako Mogi in Tokyo at cmogi@bloomberg.net; Masaaki Iwamoto in Tokyo at miwamoto4@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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