Japan’s core inflation accelerates, complicating BOJ’s rate path

TOKYO - Japan’s core inflation accelerated in March due to persistent rises in food costs, data showed on April 18, complicating the central bank’s task of weighing mounting price pressures against risks to the economy from higher US tariffs.

The data comes ahead of the Bank of Japan’s (BOJ) policy meeting next week, when the central bank is set to keep interest rates steady at 0.5 per cent and cut its growth estimates as US President Donald Trump’s steep tariffs cloud the economic outlook.

The core consumer price index, which includes oil products but excludes fresh food prices, rose 3.2 per cent in March from a year earlier, government data showed, matching a median market forecast and accelerating from a 3 per cent gain in February.

Core inflation has now exceeded the BOJ’s 2 per cent target every month for three years in a row, in a sign of mounting price pressure as companies continue to pass on rising raw material and labour costs.

Inflation measured by an index that strips away the effects of both fresh food and fuel costs – closely watched by the BOJ as a broader price trend indicator – also accelerated to 2.9 per cent in March, from 2.6 per cent in February.

Households faced price hikes for a wide range of goods including petrol, hotel bills and chocolates. Rice prices spiked 92.5 per cent in March from year-ago levels.

Prices of services rose 1.4 per cent year on year in March, much smaller than a 5.6 per cent jump in goods prices, in a sign the recent rise in inflation was driven mostly by high raw material costs.

“Food prices will stay elevated for the time being due to global bad weather and higher imported food costs,” said Mr Takeshi Minami, chief economist at Norinchukin Research Institute.

“But Trump’s tariffs could hurt domestic and overseas economies, which the BOJ must scrutinise. We see an increasing chance the BOJ’s next interest rate hike will be delayed to July or later.”

The hit to consumption from rising living costs will add to headaches for policymakers struggling to quantify the potential damage from higher US tariffs that threaten to derail a modest recovery in Japan’s export-reliant economy.

“The recent US tariff measures affect various industries and heighten uncertainty,” Finance Minister Katsunobu Kato told Reuters on April 17 in the government’s strongest warning yet as the two nations began trade talks.

“We’re deeply concerned they could affect Japan’s economy, as well as the global economy.”

Stubbornly high food prices and rising wages have kept consumer inflation above the BOJ’s 2 per cent target and underpinned market expectations that the central bank will continue increasing interest rates from the current 0.5 per cent.

But Mr Trump’s tariff plans have jolted financial markets and stoked fears of a global recession, making it less clear whether the BOJ can keep raising rates.

BOJ governor Kazuo Ueda said on April 17 that the central bank would continue to raise interest rates, but it would be vigilant to sharply heightened economic uncertainty from the US tariffs.

Although Washington announced a 90-day postponement on plans for sweeping tariffs on goods imported into the US, it has maintained 25 per cent duties on aluminium, steel and automobiles, and a blanket 10 per cent tariff on imported goods. REUTERS