(Bloomberg) — Japan’s inflation accelerated more than expected on higher food prices, rising at the fastest pace since the middle of 2023 and keeping the Bank of Japan on track to raise its benchmark interest rate further.
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Consumer prices excluding fresh food rose 3.2% from a year earlier in January, the biggest gain since June 2023, according to the ministry of internal affairs Friday. The acceleration was slightly faster than expected, and was pushed up by higher processed food prices including a record 70.9% jump in the cost of rice, the country’s staple food.
Overall inflation accelerated to 4% from 3.6% according to the ministry, hitting that mark for the first time in two years. Fresh food prices rising at the fastest pace in two decades also contributed to the acceleration in overall inflation, as vegetable prices including cabbage soared.
The report reaffirms Japan’s overall inflation as the highest among Group of Seven nations, underscoring BOJ board members’ recent comments about the need to watch upside risks. While Governor Kazuo Ueda has overseen three rate hikes in the space of a year, the continued strength in inflation could encourage speculation that the next hike will come sooner than expected. Economists surveyed last month saw the next increase in borrowing costs coming around July.
“Japan’s core inflation is likely to remain around 3% in the first half of this year,” said Taro Saito, head of economic research at NLI Research Institute. “The BOJ will keep mulling the timing of its next rate hike, rather than worrying about whether they need it.”
As traders reassess their views on the BOJ’s rate hike path, Japan’s benchmark 10-year bond yields have risen this month.
What Bloomberg Economics Says…
“Another month, another hot Japan CPI report — and it all points to the Bank of Japan continuing to withdraw stimulus this year. Inflation momentum continued to build in January, fueled by soaring food prices and spillover effects on services.”
— Taro Kimura, senior Japan economist
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Hotter summers, a weak yen and labor shortage are among the driving factors feeding into the higher cost of food for households, as businesses continue to pass their rising price burden onto consumers.
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