Tokyo inflation slows in March, clouding rate hike outlook

CORE inflation in Tokyo increased by 2.4 per cent in March, data showed on Friday, slowing slightly from the previous month’s reading in a sign of easing pressure from rising raw material costs.

The data suggest the Bank of Japan (BOJ) may be cautious in implementing further interest rate hikes, after ending an eight-year negative interest rate policy last week.

The rise in the core consumer price index (CPI) in the Japanese capital, an early indicator of nationwide figures, matched a median market forecast and followed a 2.5 per cent increase in February.

A separate index excluding the effect of both fresh food and fuel costs, viewed as a broader price trend indicator, rose 2.9 per cent in March from a year earlier after a 3.1 per cent gain in February, the data showed.

The central bank has said its decision to end negative rates last week was driven by signs that robust demand and the prospect of higher wages were prodding firms to keep hiking prices for both goods and services.

BOJ Governor Kazuo Ueda has said the central bank could hike rates again if inflation overshoots expectations or upside risks to the price outlook heighten significantly.

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Big firms have offered bumper pay hikes in this year’s annual wage negotiations, heightening the prospect that Japan will see inflation sustained around the BOJ’s 2 per cent target.

But consumption has showed signs of weakness as rising living costs hit households, casting doubt on the strength of Japan’s economy.

Factory output also remains weak due to production and shipment disruptions at Toyota Motor and its small-car unit, which could weigh on the broader economy due to their huge presence in Japan’s manufacturing sector.

Japan’s economy expanded an annualised 0.4 per cent in the final quarter of last year, narrowly averting a technical recession as robust capital expenditure offset weaknesses in consumption. REUTERS