(Bloomberg) -- The Bank of Japan sees the rapid increase in oil prices following Russia's invasion of Ukraine pushing inflation beyond its latest forecast, adding to the negative factors weighing on a fragile economy, according to people familiar with the matter.
Depending on movements in commodity prices, inflation could temporarily hit 2% this year, the people added. The comments come ahead of a central bank meeting later this month.
Still, the BOJ continues to see little need to discuss policy normalization for now as cost-push inflation by itself won't be sustainable, the people said. The oil surge will increase the likelihood that the economy's recovery will be delayed, they added.
Oil hit the highest level since 2008 this week as it topped $110 a barrel. That's up about 30% since BOJ board members ended a policy meeting on Jan. 21 and gave their latest quarterly price projections. At the time, the BOJ said inflation would likely average 1.1% in the year ending March 2023.
JPMorgan Chase & Co. said Brent crude could end the year at $185 a barrel if Russian supplies continue to be disrupted.
The jump in oil prices will put downward pressure on corporate profits and could keep consumer spending weak even when concerns over the pandemic recede enough to make consumers willing to travel or go shopping again, the people said.
If the downward pressure continues, that could warrant a discussion over whether the BOJ's assessment of the economy needs to be downgraded, they added.
Japan's recovery is already lagging behind other major economies with the omicron variant keeping a lid on consumer spending and raising the risk of another contraction this quarter.
Prime Minister Fumio Kishida Thursday announced that semi-emergency restrictions will stay in place in coming weeks for most of the economy. The record wave of infections also halted factory lines early this year.
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