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Japan inflation ticks up in May to 2.5 per cent

TOKYO (AFP) – The pace of Japanese inflation accelerated in May partly due to higher energy bills, government data showed yesterday, as analysts speculate on the timing of the Bank of Japan’s (BoJ) next rate hike.

The Consumer Price Index (CPI) – which excludes volatile fresh food prices – rose 2.5 per cent year-on-year, compared with the 2.2 per cent logged in April by the internal affairs ministry.

The ministry said that “energy, including electricity and gas bills, contributed” to the acceleration, which was slightly lower than market expectations of 2.6 per cent.

While the United States and other major economies have battled sky-high inflation in recent years, price rises in Japan have been less extreme.

The BoJ is targeting sustainable, demand-driven inflation of two per cent. While the CPI has been above this target since April 2022, the central bank has warned it was due to unstable factors such as the conflict in Ukraine.

Recently, however, the BoJ has taken cautious steps away from its long-standing ultra-loose monetary policies.

The BoJ said last week it would trim its vast hoard of government bonds, having raised interest rates for the first time since 2007 in March.

“With inflation remaining somewhat sticky… a further rate hike in July or September is likely”, although “the timetable for that may remain unclear”, senior strategist at SuMi TRUST Katsutoshi Inadome said earlier this month.

Excluding fresh food and energy, Japanese prices rose 2.1 per cent in May, against market expectations of 2.2 per cent and following a 2.4 per cent rise in April, Friday’s data showed.

Data released earlier this month showed that Japan’s household spending rose in April for the first time in 14 months, with wage growth at the fastest pace in three decades.

Wage growth is a key factor for the BoJ’s policy decisions, as it seeks a “virtuous cycle between wages and prices”.

Visitors stroll at Tsukiji Outer Market in Tokyo, Japan. PHOTO: AP