Japan's core inflation hits 2-year high, keeps rate-hike bets alive
TOKYO: Japan's core inflation hit 3.7% in May, the fastest annual pace in more than two years and keeping pressure on the central bank to resume interest rate hikes.
The data underscores the challenge the Bank of Japan faces in juggling mounting pressure from sticky food inflation and risks to the fragile economy from U.S. tariffs.
The increase in the core consumer price index (CPI), which excludes volatile fresh food costs, compared with a median market forecast for a 3.6% gain and followed a 3.5% rise in April. It was the fastest annual pace since 4.2% marked in January 2023, government data showed on Friday.
A separate index that strips away the effects of both volatile fresh food and fuel costs, which is closely watched by the BOJ as a better indicator of demand-driven price moves, rose 3.3% in May from a year earlier after a 3.0% rise in April. It was the fastest year-on-year rise since January 2024, when the index was up 3.5%.
Stubbornly high prices of food, particularly those of Japan's staple rice, remained the main driver of inflation, the data showed.
Food prices, excluding those of volatile fresh food, rose 7.7% in May from a year earlier, faster than the 7.0% gain in April, reflecting the pain households are feeling from rising living costs. The price of rice doubled in May from year-before levels, the data showed.
Service-sector inflation hit 1.4% in May, slightly faster than the 1.3% in April but much slower than the 5.3% increase for goods prices, the data showed.
The BOJ ended a massive stimulus programme last year and in January raised short-term rates to 0.5% on the view Japan was on the cusp of durably meeting its 2% inflation target.
While the central bank has signalled readiness to raise rates further, the economic repercussions from higher U.S. tariffs forced it to cut its growth forecasts and complicated decisions around the timing of the next rate increase.
A slight majority of economists in a Reuters poll expected the BOJ's next 25-basis-point increase to come in early 2026. - Reuters
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
The Star
an hour ago
- The Star
Accenture beats third-quarter revenue estimates
FILE PHOTO: Figurines with computers and smartphones are seen in front of Accenture logo in this illustration taken, February 19, 2024. REUTERS/Dado Ruvic/Illustration (Reuters) -Accenture beat Wall Street estimates for third-quarter revenue on Friday, driven by growing demand for the consulting giant's AI-driven services from enterprise customers. It reported revenue of $17.7 billion for the quarter ended May 31, compared with analysts' average estimate of $17.30 billion, according to data compiled by LSEG. Shares of the company fell 2.6% in premarket trading after Accenture said new bookings decreased 6% to $19.7 billion in the third quarter. The company is grappling with weak U.S. federal contracting environment as the Trump administration has slowed new contracts and cut existing agreements in a bid to reduce federal spending. The company said these changes have not had a material impact on its operations or financial condition. (Reporting by Meghana Khare and Jaspreet Singh in Bengaluru; Editing by Shinjini Ganguli)
The Star
an hour ago
- The Star
Thailand's economy teeters as political turmoil threatens recovery efforts
BANGKOK: Thailand's economy is already on the ropes. Consumption has remained tepid despite a government stimulus programme, few of its economic engines are firing, and uncertainty wrought by US President Donald Trump's reciprocal tariffs means that the Thai economy could grow just over 1% this year. Now, South-East Asia's second-largest economy faces a fresh challenge: a new round of political chaos that can bring down Prime Minister Paetongtarn Shinawatra or her ruling Pheu Thai party. "We are currently in a period of economic downturn, with many issues affecting us," Visit Limlurcha, vice chairman of the Thai Chamber of Commerce, told Reuters. "This could make things even more complicated." The most significant short-term concern is the passage of a 3.78 trillion baht (US$115 billion) budget for the 2026 fiscal year, which starts on Oct 1, that must pass through parliament over the next few months. That process could get stalled if Paetongtarn, who is under siege for her handling of a festering border row with neighbouring Cambodia, dissolves parliament and triggers fresh elections. "If parliament is dissolved before the budget is passed, the process will be delayed significantly," said Prakit Siriwattanaket, managing director of Merchant Partners Asset Management. Thailand's economy has lagged regional peers as it struggles under high household debt and borrowing costs, and sluggish demand from China, which is also a key tourism market. It expanded 2.5% last year, and growth could be further halved this year due to US tariffs, Finance Minister Pichai Chunhavajira said last month. Thailand's stock market has been the worst performing bourse in Asia so far this year, down 23.4%. Industrial sentiment also hit its lowest in eight months in May, even as consumer confidence dropped to a 27-month low. There is a clear need to press ahead with government spending, which has dropped by over 38% annually during April-May 2025, OCBC economists Lavanya Venkateswaran and Jonathan Ng said in a report on Thursday, warning of a "double whammy" for the economy if both government expenditure and exports weaken. Amid the ongoing tumult, Paetongtarn may be able to hang on to her premiership and a coalition led by her Pheu Thai party could retain its majority, albeit in a weaker position compared to its previous grip on the parliament. Such an arrangement will prolong political instability and raise the spectre of street protests, which have been part of previous crises and could hit one of Thailand's key remaining economic engines: tourism. "I'm worried. I don't want the situation to cause people to take to the streets," Thienprasit Chaiyapatranun, President of Thai Hotels Association, which represents around 1,000 hospitality establishments, told Reuters. "If they take to the streets, it will hit tourism." Activists - including those who have in the past agitated against Paetongtarn's father, the divisive former premier Thaksin Shinawatra - met on Friday (June 20) to plan a major protest next week, and demanded the prime minister's resignation. A government lacking full authority may also struggle in ongoing trade negotiations with the United States, which has threatened to impose a 36% tariff rate on imports from Thailand, said Natapon Khamthakrue, an analyst at Yuanta Securities. "The United States certainly would not want to talk to a government without full power or with few votes," he said. Some business chambers and analysts are, nonetheless, holding out hope that a political resolution can be found quickly, minimising damage to the Thai economy, which has been rattled by multiple coups in the last eight decades, including two against governments led by the Shinawatra family. "Although the economy is no stranger to political uncertainty," OCBC's economists said, "the timing could not be more inconvenient considering external headwinds." - Reuters
The Star
an hour ago
- The Star
Rice prices double in Japan as inflation accelerates
A customer purchases a bag of government stockpiled rice on sale in a section of convenience store chain Seven-Eleven Japan in Tokyo on June 17, 2025. The price of rice went up 101 per cent on-year in May. - AFP TOKYO: Rice prices doubled last month in Japan as core inflation accelerated, official data showed Friday (June 20), posing a threat to Prime Minister Shigeru Ishiba ahead of July elections. The vote for parliament's upper house, due next month, is crucial for Ishiba after public support for his government tumbled to its lowest level since he took office in October, partly due to frustration over the cost of living. In May, Japan's core inflation rate, which excludes volatile fresh food prices, hit 3.7 per cent - its highest level since January 2023 - interior ministry data showed. The figure narrowly beat market expectations and was up from a 3.5 per cent year-on-year rise logged in April. Rice was more than twice as expensive as a year previously - despite the government releasing its emergency stockpile of the staple grain to try to bring its price down. A supply chain snarl-up has caused a shortage of rice in shops, with the grain's price up 101 per cent on-year in May, compared to the eye-watering 98 per cent rise in April. The government began releasing stockpiles in February in an attempt to drive down prices, something it has only previously done during disasters. Electricity bills were 11.3 per cent higher in May, and gas fees rose 5.4 per cent, according to Friday's data. Excluding energy and fresh food, Japan's consumer price index (CPI) rose 3.3 per cent, compared to April's 3.0 per cent. To help households combat inflation, Ishiba has pledged cash handouts of 20,000 yen (US$139) for every citizen, and twice as much for children, ahead of the election. The 68-year-old leader's coalition was deprived of a majority in the powerful lower house in October as voters vented their anger at rising prices and political scandals. It was the worst election result in 15 years for the Liberal Democratic Party (LDP), which has governed Japan almost continuously since 1955. Earlier this week the Bank of Japan kept its interest rates unchanged and said it would taper its purchase of government bonds at a slower pace, as trade uncertainty threatens to weigh on the world's number four economy. "Policy flip-flops and delayed pass-through from producers to consumers mean inflation will slow only gradually in the coming months," said Stefan Angrick of Moody's Analytics. "This will keep a sustained pickup in real wages out of reach, and with it a meaningful uptick in consumption." Factors behind the rice shortages include an intensely hot and dry summer two years ago that damaged harvests nationwide. Since then some traders have been hoarding rice in a bid to boost their profits down the line, experts say. The issue was made worse by panic-buying last year prompted by a government warning about a potential "megaquake" that did not strike. Going forward, US tariffs are expected to weigh on Japan's growth, with economists predicting a slowdown ahead. Intensifying fighting between Iran and Israel was also adding pressure for energy prices to head north, posing a further risk to the Japanese economy. - AFP
