Japan’s core inflation accelerates for 4th month in August

TOKYO : Japan’s core consumer inflation accelerated for the fourth straight month in August and tracked comfortably above the central bank’s 2 per cent target, data showed on Friday, keeping alive expectations for further interest rate hikes.
The data comes hours before the Bank of Japan concludes its two-day policy meeting, where it is widely expected to keep interest rates steady at 0.25 per cent.
The core consumer price index, which excludes volatile fresh food costs, rose 2.8 per cent in August from a year earlier, matching a median market forecast. It followed a 2.7 per cent rise in July.
A separate index stripping away both fresh food and fuel costs, which is scrutinised by the BOJ as a better gauge of demand-driven inflation, rose 2.0 per cent in August from a year earlier. In July, the index was up 1.9 per cent.
“While the yen has strengthened sharply in recent weeks, we think it will take at least half a year for lower input costs to be passed on to consumer prices,” said Marcel Thieliant, head of Asia-Pacific at Capital Economics.
“Accordingly, underlying inflation should remain around 2 per cent over the coming months, prompting another rate hike by the Bank of Japan at its October meeting,” Thieliant said.
The BOJ ended negative interest rates in March and raised short-term interest rates to 0.25 per cent in July on the view inflation was on course to hit its 2 per cent target in coming years.
BOJ Governor Kazuo Ueda has stressed the bank’s readiness to raise rates further if inflation durably hits its target accompanied by solid wage growth.
Japan’s core consumer inflation has exceeded the BOJ’s 2 per cent for well over two years as rising raw material import costs, due in part to the weak yen, prodded firms to hike prices.
In current projections made in July, the BOJ expects core consumer inflation to hit 2.5 per cent in the year ending in March 2025 before slowing to 2.1 per cent in fiscal 2025 and 1.9 per cent in 2026.