Latest news with #inflation
Zawya
32 minutes ago
- Business
- Zawya
Japan's core inflation hits 2-year high, keeps rate-hike bets alive
TOKYO - Japan's core inflation hit a more than two-year high in May and exceeded the central bank's 2% target for well over three years, keeping it under pressure to resume interest rate hikes despite economic headwinds from U.S. tariffs. The data underscores the challenge the Bank of Japan faces in juggling pressure from sticky food inflation and risks to the fragile economy from uncertainty over President Donald Trump's trade policy. The core consumer price index (CPI), which excludes volatile fresh food costs, rose 3.7% in May from a year earlier, data showed on Friday, exceeding market forecasts for a 3.6% gain and accelerating from a 3.5% increase in April. It was the fastest annual pace since the 4.2% hit in January 2023. The increase was driven by stubbornly high prices of food, excluding volatile fresh items like vegetables, with Japan's staple rice seeing prices double in May from year-before levels. Rice balls cost nearly 20% more than year-before levels, while a bar of chocolate saw prices rise 27%, the data showed. While slower than the 5.3% increase in goods prices, service-sector inflation accelerated to 1.4% in May from 1.3% in April in a sign firms were steadily passing on labour costs. "Given heightened uncertainty over U.S. tariff policy, the BOJ is taking a wait-and-see approach to scrutinise developments in bilateral trade talks," said Ryosuke Katagi, market economist at Mizuho Securities. "But today's data shows anew that domestic inflation is heightening particularly that for goods. When looking just at price moves, conditions for additional rate hikes will likely stay in place throughout 2025," he said. A separate index that strips away the effects of both volatile fresh food and fuel costs rose 3.3% in May from a year earlier after a 3.0% rise in April, the data showed. The rise in the index, which is closely watched by the BOJ as a better indicator of demand-driven price moves, was the fastest since January 2024 when it increased 3.5%. 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. BOJ policymakers expect such cost-push pressures to moderate later this year and, coupled with expected rises in wages, underpin consumption and keep Japan on track to durably achieve their 2% inflation target backed by solid domestic demand. Analysts polled by Reuters expect core inflation in Tokyo, considered a leading indicator of nationwide trends, to slow to 3.3% in June from 3.6% in May. But some analysts are less convinced. "Inflation is overshooting expectations. The rise in food costs is particularly big and re-accelerating this year," said Yoshiki Shinke, an economist at Dai-ichi Life Research Institute, adding that firms seem keen to raise prices further. "Core consumer inflation will likely slow below 3% in August and below 2% early 2026. But the pace of slowdown could be more moderate than we expect," he said. 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 repercussions from higher U.S. tariffs forced it to cut its growth forecasts and complicated decisions around the timing of the next rate increase. Minutes of the BOJ's April 30-May 1 meeting showed the board divided on the future inflation path with some members warning that inflation could overshoot the BOJ's projections. Underscoring its attention to inflationary pressures, a BOJ research paper said hiking rates only gradually as raw material costs rise could heighten the risk of an upward spiral in wages and consumer prices. A slight majority of economists in a Reuters poll expected the BOJ's next 25-basis-point increase to come in early 2026. (Reporting by Leika Kihara; Editing by Sam Holmes)
Reuters
39 minutes ago
- Business
- Reuters
Slow rate hikes could cause wage-price spiral, BOJ paper says
TOKYO, June 20 (Reuters) - Hiking interest rates only gradually as raw material costs rise could heighten the risk of an upward spiral in wages and consumer prices, the Bank of Japan said in a research paper released this week. The paper's publication on Thursday comes as the central bank faces an increasingly complicated policy environment, with inflation at a more than two-year high and U.S. tariffs fanning economic uncertainty. While the staff papers do not represent the BOJ's official view on monetary policy, they provide hints on key topics of attention within the central bank in setting interest rates. The BOJ staff paper, using data from 2002 to 2024, analysed trends in Japan and Europe - which both rely heavily on imported commodities - to study the extent to which rising material costs led to second-round effects on inflation. In Japan, the pass-through of prices from rising raw materials was more moderate than in Europe, the paper said. The second-round effects were moderate but sustained in both Japan and Europe, it said. "Both in Japan and Europe, the initial effects of high raw material costs were the main cause of inflationary trends since 2020. The second-round effects may have heightened the sustainability of price rises," the paper said. Central banks typically raise interest rates to avoid second-round effects on inflation, or a state in which initial price shocks like higher energy costs trigger a spiral of rising wages and inflation that could lead to a broad-based, persistent inflationary environment. A closer look at Japan's data suggested the BOJ's slow pace of interest rate hikes could be enhancing the second-round effects on inflation, the paper said. Structural changes in Japan's labour market could also be making wages less rigid - or more likely to move flexibly reflecting a tight job market - and enhancing the second-round effects on inflation than in the past, the paper said. The analysis comes amid heightening attention within the BOJ board on how persistent rises in food and raw material costs could affect underlying inflation, and households' perception of future price moves. While uncertainty over U.S. tariff policy has put the BOJ on hold in raising interest rates, Governor Kazuo Ueda has signaled the bank's resolve to keep pushing up borrowing costs if Japan stays on course to durably hit the bank's 2% inflation target. Japan's core inflation hit a more than two-year high in May and exceeded the central bank's 2% target for well over three years, keeping it under pressure to resume rate hikes despite economic headwinds from U.S. tariffs.
Bloomberg
an hour ago
- Business
- Bloomberg
Philippines to Step In Should Peso Weakness Threaten Prices
Philippine central bank Governor Eli Remolona said authorities are prepared to intervene more strongly in the foreign-exchange market should the decline in the peso threaten inflation. 'The effect of the exchange rate on inflation depends on how big the depreciation is, and we have estimates of that threshold,' Remolona said in an interview with CNBC on Friday. 'We would come in somewhat more forcefully than before' once such threshold is breached, he said.
NHK
an hour ago
- Business
- NHK
Swiss National Bank cuts interest rate to zero as inflation slows
Switzerland's central bank has cut its interest rate to zero, a move that reflects a steady easing of inflationary pressure in the country. The Swiss National Bank said in a statement on Thursday that its policy rate will be lowered from 0.25 percent after inflation dipped to minus 0.1 percent in May. It's the bank's sixth consecutive cut since March 2024. The rate is now at the lowest since September 2022, when the bank ended a negative rate policy. The central bank added in the statement that the outlook for the global economy faces high uncertainty. It said developments abroad represent the main risk for the Swiss economy. The additional import tariffs imposed by the US this year triggered selling of the dollar and buying of Swiss francs as a safe haven asset. This has further lowered the cost of Switzerland's imports.
CNA
an hour ago
- Business
- CNA
Slow rate hikes could cause wage-price spiral, BOJ paper says
TOKYO :Hiking interest rates only gradually as raw material costs rise could heighten the risk of an upward spiral in wages and consumer prices, the Bank of Japan said in a research paper released this week. The paper's publication on Thursday comes as the central bank faces an increasingly complicated policy environment, with inflation at a more than two-year high and U.S. tariffs fanning economic uncertainty. While the staff papers do not represent the BOJ's official view on monetary policy, they provide hints on key topics of attention within the central bank in setting interest rates. The BOJ staff paper, using data from 2002 to 2024, analysed trends in Japan and Europe - which both rely heavily on imported commodities - to study the extent to which rising material costs led to second-round effects on inflation. In Japan, the pass-through of prices from rising raw materials was more moderate than in Europe, the paper said. The second-round effects were moderate but sustained in both Japan and Europe, it said. "Both in Japan and Europe, the initial effects of high raw material costs were the main cause of inflationary trends since 2020. The second-round effects may have heightened the sustainability of price rises," the paper said. Central banks typically raise interest rates to avoid second-round effects on inflation, or a state in which initial price shocks like higher energy costs trigger a spiral of rising wages and inflation that could lead to a broad-based, persistent inflationary environment. A closer look at Japan's data suggested the BOJ's slow pace of interest rate hikes could be enhancing the second-round effects on inflation, the paper said. Structural changes in Japan's labour market could also be making wages less rigid - or more likely to move flexibly reflecting a tight job market - and enhancing the second-round effects on inflation than in the past, the paper said. The analysis comes amid heightening attention within the BOJ board on how persistent rises in food and raw material costs could affect underlying inflation, and households' perception of future price moves. While uncertainty over U.S. tariff policy has put the BOJ on hold in raising interest rates, Governor Kazuo Ueda has signaled the bank's resolve to keep pushing up borrowing costs if Japan stays on course to durably hit the bank's 2 per cent inflation target. Japan's core inflation hit a more than two-year high in May and exceeded the central bank's 2 per cent target for well over three years, keeping it under pressure to resume rate hikes despite economic headwinds from U.S. tariffs.
