(Bloomberg) -- Tokyo’s inflation outpaced forecasts to hit 4% for the first time since 1982, suggesting the underlying price trend is stronger than thought by economists, a factor that could further fuel speculation the Bank of Japan will adjust policy again.

Consumer prices excluding fresh food climbed 4% in the capital in December as food and energy costs continued to mount and a majority of tracked items got more expensive, according to the ministry of internal affairs Tuesday. Economists had forecast a 3.8% rise. 

Tokyo inflation is a leading indicator of the nationwide trend, and the faster pace suggests the country’s price growth also likely accelerated in December. The figures are the last key price data before the central bank meets again next week to decide on policy and update its inflation forecasts.

While the central bank expects inflation to be close to a peak, the continued acceleration suggests prices are running hotter than the BOJ’s projections. The latest Tokyo figures are likely to keep economists and investors on high alert over more possible policy changes by the central bank.

“Inflation is spreading,” said Taro Saito, head of economic research at NLI Research Institute. “Given some service prices are rising like the cost of taxis, it’s getting hard to fully agree with the BOJ’s argument that inflation is only happening mainly due to import costs.”

Of the 522 items included in core CPI figures, 376 items showed a price increase according to an internal affairs ministry official. 

Processed food prices jumped 7.5% compared with the previous year for the fastest pace of increase since 1976. Food costs will continue to rise in 2023, following last year’s record price hikes of 20,822 products, according to a Teikoku Databank survey. The data firm says that at least 7,100 grocery items are expected to be raised in price this year, especially processed foods.  

Prices in Tokyo have exceeded the Bank of Japan’s 2% price target for seven months, but that still likely won’t convince Governor Haruhiko Kuroda that the trend will stick yet. The BOJ expects prices to cool below 2% next fiscal year. 

Kuroda has said the central bank will continue with monetary easing until Japan achieves its inflation goal on a sustainable basis, supported by stronger wage growth.

A separate data report showed household spending declined for the first time in three months in November, indicating that the inflationary wave may be starting to eat into household spending.

Still, an internal affairs ministry official said the slump was largely due to a warmer-than-usual November that discouraged consumers from buying winter items. Inflation wasn’t the largest factor, the official said.

What Bloomberg Economics Says...

“December’s jump in Tokyo core inflation to 4% bodes ill for consumer spending in the fourth quarter of 2022. Japan’s inflation started as a cost-push phenomenon fueled largely by higher import prices but is spreading to services including hotels and taxis.”

— Yuki Masujima, economist

For the full report, click here 

Still, a potential source of support going forward is Prime Minister Fumio Kishida’s economic stimulus package, which is worth 39 trillion yen ($295 billion) in fiscal spending. 

The relief measures include a variety of anti-inflationary measures, ranging from discounts on electricity bills to cash handouts for childcare. Economists expect those subsidies to start having a major impact on inflation from around next month.

“The effects of Kishida’s economic measures will be seen from February onward, so inflation still has scope to accelerate further in January,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence. 

--With assistance from Sumio Ito and Keiko Ujikane.

(Updates with more details from the report, economist comments)

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