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Consumer inflation in Tokyo edged higher in August, while underlying price pressures remained close to the Bank of Japan’s target, reinforcing expectations that the central bank could raise interest rates in the coming months.
Tokyo core consumer price index (CPI) inflation, which excludes volatile fresh food prices, increased 1.8% year-on-year in August, according to data released Friday by Japan’s Statistics Bureau. The reading matched market expectations and was slightly above July’s revised 1.7% increase. The previous month’s figure was initially reported at 1.9%.
A narrower measure of core inflation that excludes both fresh food and energy prices slowed to 1.9% in August from 2.0% in July. The Bank of Japan closely monitors this gauge for signs of persistent underlying inflation.
Headline Tokyo CPI inflation accelerated to 1.9% year-on-year from 1.8% in the previous month.
Inflationary pressures were partly restrained by a stronger Japanese yen following joint currency market intervention by the United States and Japan. Yen appreciation has reduced the cost of some imported goods, providing relief from elevated import prices.
Despite the stronger currency, Japan continues to face persistent increases in food and household living costs. Government subsidies for consumer fuel and gas prices have also helped cushion the impact of soaring global oil prices linked to the Iran conflict. Tokyo indicated earlier this week that the subsidy program would remain in place.
However, higher energy prices could eventually feed into consumer inflation. Japan’s producer price inflation has risen sharply in recent months, raising the possibility that businesses will pass higher fuel and production expenses on to consumers.
Tokyo inflation data is widely viewed as an early indicator of nationwide Japanese CPI trends. The August figures suggest inflation remains relatively sticky despite easing import costs.
Persistent price pressures could give the Bank of Japan additional justification to continue tightening monetary policy. Investors are increasingly pricing in the possibility that the BOJ could raise interest rates as early as September, making upcoming inflation and economic data particularly important for the yen and Japanese financial markets.
