Core consumer inflation in Japan’s capital slowed in May, but a key index that strips out the effect of fuel hit a four-decade high, underscoring rising price pressures that may keep alive expectations of a withdrawal of ultra-loose monetary policy.
The Tokyo data, which is considered a leading indicator of nationwide trends, showed that companies were continuing to pass on rising costs to households, in a sign that inflationary pressure could last longer than the Bank of Japan expects.
Tokyo’s core consumer price index (CPI), which excludes volatile fresh food but includes the cost of fuel, rose 3.2% in May from a year earlier, government data showed Friday, roughly matching the average market forecast of a 3.3% increase.
Although inflation slowed from 3.5% the previous month, it remained above the 2% target set by the Bank of Japan for the full year, as steadily rising food prices offset falling fuel costs, the data showed.
The index excluding fresh food and fuel prices rose 3.9% in May from a year earlier, the fastest pace of increase since April 1982, when Japan was experiencing an asset-inflated bubble.
“Inflation already appears to be outpacing the Bank of Japan’s forecasts. The prospect of rising wages is pushing more companies to pass on rising labor costs in price hikes,” says Takuya Hoshino, chief economist at the Dai-ichi Life Analysis Institute.
“Depending on how the upcoming data unfolds, there is a possibility that the BOJ will respond to elevated inflation by tightening its ultra-loose monetary policy,” he said.
Other data released Friday showed the price that service companies charge each other rose 1.6% in April from a year earlier, marking the 26th consecutive month of increases, as the reopening of the economy after pandemic curbs boosted tourism demand.