TOKYO, Apr 19 (Reuters): Core consumer prices in Tokyo, a leading indicator of nationwide inflation, probably rose the most in 22 years in April after an increase in Japan's sales tax drove up prices across the board, a Reuters poll showed on Friday.
The headline figure for Japan's nationwide consumer inflation likely rose to a new five-year high in March, the poll also showed, and is expected to follow the Tokyo index's lead in pushing sharply higher in the coming months.
Excluding the impact of the April 1 tax hike, Japanese consumer prices are expected to keep showing steady headway towards the Bank of Japan's 2 per cent inflation target.
But the erosion of consumer spending power due to the sales tax increase - to 8 per cent from 5 per cent - underscores the need for long-stagnant wages to catch up with inflation to underpin consumption and help drive the economic recovery.
"The April CPI data is seen being largely pushed up by the tax hike and rises in electricity and gasoline prices due to import price gains," said Yasuo Yamamoto, a senior economist at Mizuho Research Institute.
"What is important from now on is whether wages will sustainably rise and prices will follow suit to stay above 1 per cent gains."
The core consumer price index for Tokyo, available a month before the nationwide data, is likely to have increased 2.8 per cent in April from a year earlier, according to the median forecast of 26 economists.
That would be the fastest rise since the Tokyo index climbed 2.9 per cent in April 1992. It rose 1.0 per cent last month. The nationwide core CPI, which includes prices of oil products but excludes those of fresh food, probably rose 1.4 per cent year-on-year in March, the median estimate of 27 economists showed. That would be the fastest increase since the index rose 1.9 per cent in October 2008.
The BOJ has calculated that the tax increase will first add 1.7 per centage points to Japan's annual inflation rate in April and 2.0 per centage points from May.
In the early days after the tax hike, which was implemented to help curb the nation's mountain of public debt, policymakers have voiced optimism that the impact on consumer spending will be short-lived. But the longer-term outlook will likely also depend on wage rises.
Last month, some major companies like Toyota Motor Corp offered workers their most generous pay increases in years, but raises at many other firms were not enough to cover the 3-per centage-point increase in the sales tax.
The consumer inflation data will be released at 8:30 a.m. on April 25 (2330 GMT on April 24). Also next week, the government will announce trade data for March at 8:50 a.m. on Monday (2350 GMT on Sunday).
Exports are forecast to have risen 6.3 per cent in March from a year earlier, slowing from a 9.8 per cent rise in February due to weak demand from China. Policymakers have been concerned that exports are not recovering as quickly as anticipated.
Imports likely jumped 16.2 per cent year-on-year in March on higher fuel costs, according to the poll, after a 9.0 per cent rise in February.
