By Chang-Ran Kim and Leika Kihara
TOKYO, March 26 (Reuters) – The Bank of Japan said on Thursday the core consumer price index rose 2.2% excluding special factors in February, releasing the new gauge for the first time in what analysts say is an effort to show underlying inflation on track for further rate hikes.
The new index, which strips out “institutional factors” such as education and energy-related subsidies, showed a sharper year-on-year rise than the 1.6% in the benchmark core CPI figure the internal affairs ministry announced this week.
The move followed BOJ Governor Kazuo Ueda’s pledge last week to disclose new data to enhance communication on underlying inflation, a concept criticised by analysts as too vague despite being crucial to its rate-hike decisions.
“While the new indicator likely won’t have a direct impact on the BOJ’s rate-hike timing, it’s a major revamp in the way it communicates underlying inflation,” said former top BOJ economist Seisaku Kameda.
“The BOJ’s goal was probably to reset and simplify what had become a complex concept that wasn’t very convincing.”
In a statement published on its website, the BOJ said the new indicator excludes from the core consumer price index the impact of transitory, policy-related factors such as expansion of school tuition subsidies and measures to curb utility bills.
Such government measures were mainly introduced to cushion the blow to households from rising living costs, and therefore work to push down consumer inflation.
The BOJ said in the statement it would publish the data every month, two days after the nationwide consumer price index is released.
Core-core CPI, which also excludes energy prices, rose 2.7% excluding special factors, compared with 2.5% under the government’s calculation, the BOJ said.
The gauge is expected to help the BOJ argue that underlying inflation remains on track to stably hit 2%, even if headline inflation briefly slides below the level, analysts say.
The BOJ has defined underlying inflation as price moves driven by domestic demand, rather than cost-push factors like higher raw material costs.
As inflationary pressures broadened, however, it became increasingly hard to differentiate between price rises driven by higher costs and those driven by solid demand, analysts say.
While the central bank already releases estimates of consumer inflation excluding the impact of fresh food and fuel costs, such indices have also been swayed by various government steps to ease the burden on households from rising living costs.
In a separate statement, the BOJ also released on Thursday updated data that showed Japan’s potential growth rate at 0.65%, a figure Kameda said may lead to a slight upgrade in the BOJ’s neutral rate estimate.
Ueda had said the BOJ will release updated estimates on Japan’s neutral interest rate, or the level that neither cools nor overheats growth, by summer. The neutral rate is closely watched by markets for clues on how much further the BOJ could raise its short-term policy rate from the current 0.75%.
(Reporting by Chang-Ran Kim and Leika Kihara, additional reporting by Makiko Yamazaki and Mariko Katsumura; Editing by Sam Holmes)
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