Tokyo core CPI seen up 3.8pc in December, new 40-year-high

TOKYO (Reuters) - Consumer prices in Japan s capital likely rose in December at the fastest pace in nearly 41 years, a Reuters poll of economists showed on Friday, as the market looks to inflation data for clues on a possible shift in monetary policy.

The core consumer price index (CPI) in Tokyo, a leading indicator of nationwide inflation trends, was expected to have climbed 3.8% in December from a year earlier on widening retail price rises, according to the median estimate of 16 economists.

That would follow a 3.6% increase in November and hit a fresh high since April 1982 s 4.2% rise, when inflation was still hot in the aftermath of the 1970s  oil crises.

"Although global commodity prices have come down to the pre-Ukraine war levels and weakness in the yen has abated, price hikes in goods and services will likely continue since many Japanese firms haven t been able to reflect higher input costs on their selling prices," said Takeshi Minami, chief economist at Norinchukin Research Institute.

Japan s CPI figures have drawn unusual attention as traders look for any hints ahead of the Bank of Japan s Jan. 17-18 rate review that it may start to exit from its ultra-loose policy. The central bank jolted the market last month with a surprise tweak to its long-term yield cap, allowing rates to rise more.

Economists in the poll also expected the first month-on-month contraction in household spending in three months in November, a worrying sign for a consumption-led recovery of the world s third-largest economy.

Household spending likely dropped 0.5% in November from the previous month, while it was forecast to have risen 0.5% from the same month a year earlier, according to the poll.

The poll also showed, Japan s current account balance likely returned to a surplus of 471.1 billion yen ($3.52 billion) in November, after October s 64.1 billion yen deficit, the first shortfall since January.

The government will release the Tokyo CPI data and household spending data on Jan. 10 at 8:30 a.m. (Jan. 9, 2330 GMT). The current account data is due on Jan. 12 at 8:50 a.m. (Jan. 11, 2350 GMT).