🚀 AI-picked stocks soar in May. PRFT is +55%—in just 16 days! Don’t miss June’s top picks.Unlock full list

Inflation in Tokyo slows in May, but key gauge hits four-decade high

Published 05/25/2023, 07:44 PM
Updated 05/26/2023, 12:55 AM
© Reuters. FILE PHOTO: A man buys fish at a market in Tokyo, Japan March 3, 2023. REUTERS/Androniki Christodoulou/File Photo

By Takahiko Wada and Leika Kihara

TOKYO (Reuters) -Core consumer inflation in Japan's capital slowed in May, but a key index stripping away the effect of fuel hit a four-decade high, underscoring broadening price pressure that may keep alive expectations of a withdrawal of ultra-loose monetary policy.

The data for Tokyo, which is seen as a leading indicator of nationwide trends, showed companies continued to pass on rising costs to households in a sign inflationary pressure could last longer than the Bank of Japan (BOJ) projects.

The Tokyo core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, rose 3.2% in May from a year earlier, government data showed on Friday, roughly matching a median market forecast for a 3.3% gain.

While inflation slowed from the previous month's 3.5%, it stayed above the BOJ's 2% target for a full year as steady food price gains offset falling fuel costs, the data showed.

An index that strips away both fresh food and fuel costs rose 3.9% in May from a year earlier, marking the fastest pace of increase since April 1982 when Japan was experiencing an asset-inflated bubble.

"Inflation already appears to be overshooting the BOJ's forecasts. Prospects of higher wages are prodding more firms to pass on rising labour costs through price hikes," said Takuya Hoshino, chief economist at Dai-ichi Life Research Institute.

"Depending on how upcoming data plays out, there's a chance the BOJ could respond to elevated inflation with a tweak to its ultra-loose policy," he said.

Separate data released on Friday showed the price service companies charge each other rose 1.6% in April from a year earlier, marking the 26th straight month of gains, as the economy's re-opening from pandemic curbs boosted tourism demand.

Japan's economy is finally recovering from the scars of the COVID-19 pandemic, though risks of a global slowdown and rising food prices hang over the outlook for exports and consumption.

With inflation already exceeding its target, markets are rife with speculation the BOJ could soon phase out ultra-loose monetary policy under new governor Kazuo Ueda.

Ueda has repeatedly said inflation will slow in coming months as cost-push factors dissipate, and that the BOJ will maintain ultra-loose policy until stronger wage growth ensures Japan can sustainably see inflation hit its 2% target.

But he told a group interview on Thursday that the BOJ will "act swiftly" if its inflation projection proves wrong, and could tweak policy if the cost of stimulus outweighs the merits.

In a Reuters poll released on Friday more than half of the analysts surveyed expect the BOJ to start unwinding its yield curve control (YCC) policy by end-July, such as by raising the current 0.5% cap set for the 10-year government bond yield.

© Reuters. FILE PHOTO: A man buys fish at a market in Tokyo, Japan March 3, 2023. REUTERS/Androniki Christodoulou/File Photo

The BOJ will review its quarterly growth and inflation forecasts at a two-day policy meeting concluding on July 28.

Under projections made in April, the central bank expects core consumer inflation to hit 1.8% in the current fiscal year ending in March 2024. That is much lower than a 2.3% forecast in a poll released on May 15 by think tank Japan Center for Economic Research.

Latest comments

Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.