A security guard walks past the headquarters of the Bank of Japan in Tokyo, Japan on January 23, 2019. REUTERS / Issei Kato

TOKYO, July 19 (Reuters) – Rising global commodity prices are likely to push up consumer inflation in Japan, but only for a temporary period, and to a lesser extent than in Western economies, announced Monday the Bank of Japan.

As inflation is driven by strong foreign demand, profits of Japanese companies will be more than offset by strong export profits, the central bank said.

“The underlying increase in commodity prices will worsen Japan’s terms of trade for the time being,” the BOJ said in a report. “But that will be offset by positive elements, such as higher exports and capital spending.”

Wholesale prices in Japan rose 5.1% in May from a year earlier, their fastest pace since 2008, fueled by rising commodity prices. Read more

But consumer staples, the BOJ’s preferred measure of inflation, rose only 0.1% in May as weak domestic demand prevented companies from passing on the higher costs. Read more

That’s much lower than a 3.4% peak in May in the US Federal Reserve’s favorite inflation indicator, the basic personal consumption expenditure price index. Read more

Even when demand is strong, Japanese companies tend to be slower to pass on costs than their Western counterparts, which will keep any increase in consumer inflation subdued, the BoJ said.

“Looking at past experiences, any increase in consumer inflation due solely to commodity costs will not broaden and will end up being transitory,” he said.

How these costs translate into higher consumer inflation will depend on the strength of domestic demand, including consumption, and how this in turn has affected the behavior of retailers in terms of consumption. pricing, the bank added.

In new quarterly projections released on Friday, the BOJ revised its core inflation forecast upward to 0.6% from 0.1%, largely due to rising fuel costs. Read more

The BOJ said consumer inflation is expected to accelerate towards the end of the year due to rising energy costs and the base effect of a government rebate campaign that has lowered travel costs at the end of last year.

Reporting by Leika Kihara; Editing by Clarence Fernandez

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