Japan’s core inflation accelerates, complicating Boji’s rate path
By playing Kihara
TOKYO (Reuters) – Japan’s core inflation accelerated in March as data presented on Friday complicates the central bank’s task of measuring increased price pressure on high banks’ risks on the economy.
The data is before the Bank of Japan policy meeting from April 30th to May. This is set up by the banks to stabilize interest rates at 0.5% and reduce growth estimates as President Donald Trump’s sudden tariffs cloud the economic outlook.
The Core Consumer Price Index (CPI), which excludes fresh food prices, rose 3.2% from the previous year in March, and government data showed that it accelerated, consistent with the median market forecast from a 3% increase in February.
Core inflation has surpassed the monthly BOJ 2% target for the third year in a row, a sign of increasing price pressure as companies continue to take over rising raw materials and labor costs.
Inflation measured by an index that removes the effects of both fresh food and fuel costs – BOJ carefully watched as a broader price trend indicator – accelerated from 2.6% in February to 2.9% in March.
Households are facing a wide range of prices for products, including gasoline, hotel bills, and chocolate. Rice prices rose 92.5% from the same level in March, compared to the same period last year.
Service prices rose 1.4% year-on-year in March, with recent rises in inflation far less than 5.6% of commodity prices, mainly signs driven by high raw material costs.
“Food prices will continue to rise at the time due to bad weather around the world and increased cost of imported food,” said Takeshimami, chief economist at the Noli Chicken Institute.
“But Trump’s tariffs could hurt the domestic and international economies that BOJ has to scrutinize. It’s likely that Boj’s next rate hike will be delayed after July,” he said.
The impact on consumption from increased cost of living adds to the headaches of policymakers struggling to quantify the potential damages from higher US tariffs, threatening to derail the modest recovery in Japan’s export-dependent economy.
The difficult question of customs
Gov. Boji Governor Huadang told Congress on Friday that recent rise in consumer inflation has been driven by rising food prices, but such cost push pressure is likely to dissipate.
“As we project, if the underlying inflation continues to accelerate to 2%, we will continue to raise interest rates,” Ueda said. “But we’ll scrutinise without prior concepts as to whether our forecasts actually come true,” gives uncertainty about how Trump’s tariffs will affect the economy.