Cost of Living: Japan Inflation Jumps to New 41-Year High

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As companies pass on increasing expenses to their customers, Japan's inflation rate has increased to a level not seen in 41 years. Core consumer prices increased by 4% from a year earlier in the previous month, which is twice the Bank of Japan's (BOJ) target goal. It increases the pressure on the central bank to raise interest rates to reduce the increase in living expenses. Investors were taken aback this week when the BOJ said that it will maintain rates close to zero despite rising prices for everything from food to fuel.

"Producer prices have been rising at a much faster pace than consumer prices for some time, but now companies are passing these costs on to consumers," Damian Thong, who heads Japan equity research at Macquarie Group, told the BBC. "We believe that the BOJ will [eventually] end its negative interest rate policy," he added. Inflation expectations represent what households pay for goods and services, whereas producer prices are a measure of inflation at the wholesale level. The central bank's 2% objective for inflation has been exceeded nine months in a row, according to official statistics that were issued on Friday. Inflation is now at its highest level since 1981.

Japan still has one of the lowest inflation rates in the world even after the price increase. As a result, the third-largest economy in the world defied the trend of many other nations that dramatically increased interest rates over the previous year. The BOJ maintained interest rates at or near zero on Wednesday, which caused the yen to depreciate against other major currencies. In an effort to slow the rate of price increases, many experts had anticipated that the central bank would begin to phase off its economic stimulus program. According to the most recent official statistics, inflation in the US was 6.5% in December, compared to 9.2% in the eurozone and 10.5% in the UK.