Japan’s consumer inflation picked up last month, bolstered in part by surging rice prices, supporting the central bank’s stance on a gradual rate hike path before US tariff measures clouded the economic outlook.
Consumer prices excluding fresh food rose 3.2 percent from a year ago in March, accelerating from a 3 percent increase in the month before, the Japanese Ministry of Internal Affairs said yesterday.
That matched the median estimate of economists surveyed by Bloomberg. A gauge of underlying inflation that also excludes energy prices rose 2.9 percent, as expected, the fastest since March last year.
Photo: AFP
Yesterday’s data are likely to keep Bank of Japan (BOJ) officials confident in their rate-hike posture as overall inflation has stayed above their 2 percent target for almost three years. BOJ Governor Kazuo Ueda has maintained his stance on intending to raise rates given price trends, while also citing the need to closely watch how US tariff measures evolve.
The faster increase comes despite a drag from the government’s utility subsidies. Service prices rose 1.4 percent from a year earlier, edging up from a 1.3 percent gain in February, but matching January’s pace. Food prices increased 7.4 percent from a year earlier, down slightly from 7.6 percent in the previous month. The price of rice, the nation’s staple food, rose 92.1 percent from a year earlier, the fastest rate since 1971.
“Food inflation is a primary factor driving inflation,” said Taro Saito, head of economic research at NLI Research Institute. “Import prices aren’t surging but food inflation stays elevated. That suggests businesses are comfortable raising prices. There may be even some cases when they are raising prices more the rise in costs. In BOJ terms, inflation expectations are shifting.”
The price gains are still high by Japan’s standards after more than a decade of deflation. The spike in rice prices is of particular concern for Japanese Prime Minister Shigeru Ishiba, whose approval rating hit a new low this month since he took office in October last year, according to a poll by public broadcaster NHK.
Consumer confidence has dropped to a two-year low, while households’ price expectations have continued to rise, according to data from the government and central bank.
“On one hand, inflation on the boil argues strongly for a reduction in stimulus. On the other, US tariffs are a risk to growth — a reason to hold. Our base case is for the central bank to stand pat at its next meeting and then hike in July,” Bloomberg economist Taro Kimura said.
The latest data show that Japan’s inflation remained the fastest among G7 economies, and it is the only G7 country that faces US tariffs with inflation on a rising trend. In addition to the levies, the elevated cost of living has raised debate among lawmakers on cash handouts or tax rebates ahead of an election likely to be held in July, according to local media reports.
Ishiba might find it harder to rebuff those calls, as he seeks to shore up support for his minority government.
Japan’s inflation is expected to stay elevated in coming months, as business owners contending with rising costs due to a labor shortage, higher material costs and prolonged yen weakness have become more willing to pass that burden onto consumers.
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