Japans May consumer inflation tops BOJ target for 2nd straight month

Japan’s inflation tops BOJ target for 2nd month in test of monetary stance via FXEmpire #forex #fx.

Japan, May consumer inflation, BOJ target

TOKYO (Reuters) -Japan’s annual core consumer inflation topped the central bank’s target for a second straight month in May, data showed on Friday, highlighting the intensifying pressure on the country’s fragile economy from soaring global raw material costs.

But with wage growth subdued, many analysts expect the BOJ to remain firmly focussed on stimulating a sluggish economy rather than fight inflation with interest rate hikes.

The nationwide core consumer price index (CPI), which excludes volatile fresh food but includes fuel costs, rose 2.1% in May from a year earlier, data showed, matching a median market forecast.

The core-core CPI, which strips away both volatile food and fuel costs, was up 0.8% in May from a year earlier after climbing by the same pace in April.

“Food prices are rising quite significantly even as wage growth remains slow. This may hurt consumption and make retailers hesitant of further passing on costs to consumers,” said Takumi Tsunoda, senior economist at Shinkin Central Bank Research Institute.

While soaring fuel costs remained the key driver of the rise in CPI, the pace of year-on-year increase in energy prices slowed to 17.1% in May from 19.1% in April.

In a glimmer of hope, separate data released by the BOJ on Friday showed the price companies pay each other for services rose 1.8% in May year-on-year.

The increase, which was the fastest annual pace since 2020, partly reflected a rebound in demand for services as COVID-19 infection numbers fell, the data showed.

Rising fuel and food prices, blamed on Russia’s invasion of Ukraine and a weak yen that inflates the cost of imports, are expected to keep Japan’s core consumer inflation above the BOJ’s 2% target for most of this year, analysts say.

But there is little to cheer for the BOJ, which views such cost-push inflation as temporary and a risk to consumption, with households facing rising living costs and slow wage growth.

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