The Bank of Japan’s assessment that underlying inflation is approaching 2% is examined through comments by Governor Ueda Kazuo (植田 和男) and movements in published indicators.
The key term in this discussion is underlying inflation. On 19 October, at the House of Councillors Budget Committee, Bank of Japan Governor Ueda Kazuo (植田 和男) said that underlying inflation was “gradually rising and has come quite close to 2%,” adding that it was becoming more important to stabilize it at around 2%.
This comment reflects the Bank of Japan’s previous explanation that it had maintained accommodative financial conditions because underlying inflation had not yet reached 2%. Meanwhile, at a press conference following the G20 meeting, Ueda also said that “further increases cannot be tolerated,” highlighting the Bank of Japan’s view that inflation is entering a phase in which it is approaching 2%.
Underlying inflation is a concept referring to the sustained momentum of price increases after excluding temporary factors such as fluctuations in crude oil and fresh food prices, but the Bank of Japan does not have a single statistic that directly measures it. The Bank makes its assessment by considering indicators such as the trimmed mean and weighted median, inflation expectations and estimates from economic models.
The article also addresses the fact that, while the rate of increase in the Consumer Price Index is slowing, the government’s subsidy policies are reducing the burden on households and contributing to lower reported inflation. The price indicators cited as factors in the Bank of Japan’s assessment include multiple measures in addition to the standard CPI.