Japan likely to avert stagflation, says senior central banker

A shopper looks at packs of vegetables at a market at a shopping district in Tokyo, Japan, December 6, 2015. Picture taken December 6, 2015. To match JAPAN-ECONOMY/TANKAN REUTERS/Yuya Shino

By Leika Kihara

TOKYO (Reuters) -Japan is unlikely to slide into stagflation, a condition where rising inflation and shrinking economic growth co-exist, a senior central bank official said on Wednesday.

With the Ukraine crisis triggering sharp rises in energy and commodity prices, consumer inflation will “clearly accelerate” as firms pass on the costs to households, said Seiichi Shimizu, head of the Bank of Japan’s monetary affairs department.

“But we don’t expect Japan to face a stagflation-like situation, defined as a combination of rising inflation and a contraction in economic growth,” he told parliament.

“We expect Japan’s economy to recover as the hit to service consumption from the coronavirus pandemic eases,” adding to support from solid external demand, he said.

The remarks, which come ahead of the BOJ’s policy meeting next week, suggest the central bank will stick to its projection of a moderate economic recovery but acknowledge rising inflationary pressure from the recent surge in energy prices.

Under an assessment made in January, the BOJ currently projects consumer inflation to “accelerate” as companies “gradually” pass on rising raw material costs to households.

While rising commodity and grain costs will push up energy and food prices in the short-term, it will hurt the economy in the long run through declines in household income and corporate profits, Shimizu said.

(Reporting by Leika KiharaEditing by Chang-Ran Kim & Shri Navaratnam)

(c) Copyright Thomson Reuters 2022. Click For Restrictions -
https://agency.reuters.com/en/copyright.html