Japan’s Inflation Slows Less Than Expected, Backing BOJ Hikes
- (Bloomberg) -- The pace of Japan’s consumer inflation was a little stronger than expected even as the resumption of government energy subsidies slowed price gains, backing the case...
- Consumer prices excluding fresh food rose 3.0% from a year ago in February, decelerating from a 3.2% pace in January, the ministry of internal affairs said Friday.
- The data were largely in line with the inflation report for Tokyo, a leading indicator that suggested a slowdown resulting from the energy subsidies.
(Bloomberg) — The pace of Japan’s consumer inflation was a little stronger than expected even as the resumption of government energy subsidies slowed price gains, backing the case for the Bank of Japan to stay on a gradual rate hike path.
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Consumer prices excluding fresh food rose 3.0% from a year ago in February, decelerating from a 3.2% pace in January, the ministry of internal affairs said Friday. Economists had expected a 2.9% gain. Overall inflation slowed a little less than expected, slipping to 3.7% from 4% in the prior month.
The data were largely in line with the inflation report for Tokyo, a leading indicator that suggested a slowdown resulting from the energy subsidies. Nationally, the subsidies shaved 0.33 percentage point off the overall inflation gauge in February. The key price gauge stayed at or above the BOJ’s 2% target for a 35th month.
Friday’s inflation report comes two days after the BOJ held its policy settings steady as authorities assessed the effects of a January hike as well as the implications of a changing landscape for global trade. At a post-decision press conference, BOJ Governor Kazuo Ueda said domestic data were broadly in line with the bank’s outlook, while uncertainties over the global economy were rising.
“The resumption of government utility subsidies caused a dent in the data while rising food inflation made it a little stronger than market consensus,” said Takeshi Minami, chief economist at Norinchukin Research Institute. “Today’s figures are probably within the BOJ’s expectations. The data don’t make an early rate hike likely.”
Ueda said the bank will likely get a better sense of the overseas outlook in early April, when the US is expected to detail plans for reciprocal tariffs on sectors including cars, pharmaceuticals and semiconductors.
In the latest economic outlook report, the bank projects the core price gauge will average 2.7% this fiscal year ending this month and 2.4% next year.
Most BOJ watchers expect the bank to raise its policy rate again in June or July and maintain a pace of one hike roughly every six months until it reaches the terminal point of the tightening cycle.
While headline inflation cooled, a deeper measure suggests that underlying price pressure remains steady. Prices excluding energy and fresh food rose 2.6%, the fastest pace in around a year. The yen’s persistent weakness, unseasonable weather and a labor shortage are among factors feeding into higher costs of a variety of food products, raising concerns for households as real wages remain stagnant.