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

TOKYO, May 26 (Reuters) – Core consumer inflation in Japan’s capital slowed in May, but major fuel-excluded indexes hit 40-year highs, pulling back on ultra-low interest rates. It highlighted growing price pressures that could sustain expectations. accommodative monetary policy.

Tokyo data, a leading indicator of national trends, show businesses continue to pass on higher costs to households as inflationary pressures may last longer than the Bank of Japan (BOJ) plans. rice field.

Tokyo’s core consumer price index (CPI), which includes fuel costs excluding volatile fresh food, rose 3.2% in May from a year earlier, government data showed on Friday, beating the median market estimate of 3.2%. It almost coincided with a 3% increase.

Inflation eased from 3.5% in the previous month but remained above the Bank of Japan’s 2% target for the full year as steady increases in food prices offset lower fuel costs, data showed.

The index, which excludes both fresh food and fuel costs, rose 3.9% in May from a year earlier, the fastest pace of gains since April 1982, when Japan experienced an asset inflation bubble.

“Inflation appears to have already exceeded the Bank of Japan’s forecast,” said Takuya Hoshino, chief economist at Dai-ichi Life Research Institute. ‘ said.

“Depending on how future data develop, the BOJ could adjust its ultra-loose monetary policy to deal with higher inflation,” he said.

Other data released on Friday showed that the reciprocal tariffs of toll service companies rose 1.6% year-on-year in April, the 26th straight month of increases, as the reopening of the economy from pandemic restraint boosted tourism demand. rice field.

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

Inflation is already above target, prompting speculation in the market that the Bank of Japan will soon gradually phase out its ultra-easy monetary policy under new governor Kazuo Ueda.

Ueda said inflation will slow in the coming months as the cost drivers dissipate, and that the BOJ will continue to stay ahead until higher wage growth ensures that inflation sustainably hits its 2% target. It has repeatedly said it will maintain its accommodative policy.

But he said in a group interview Thursday that the BOJ intends to “act quickly” if inflation forecasts turn out to be wrong, and may adjust policy if the costs of stimulus outweigh the benefits. said there is.

A Reuters poll released on Friday showed more than half of the analysts polled said they would support yield curve control (YCC) policies, including the BOJ raising the current 0.5% cap on 10-year government bonds. We expect the easing to begin by the end of July. yield.

The Bank of Japan will review its quarterly growth and inflation outlook at a two-day policy meeting that ends on July 28.

Based on forecasts made in April, the central bank expects core consumer inflation to reach 1.8% this year through March 2024. This is well below the forecast of 2.3% in a poll released May 15 by the Japan Economic Center think tank. research.

Report by reporter Leica Kihara.Editing: Sam Holmes and Sonali Paul

Our criteria: Thomson Reuters Trust Principles.