Tokyo inflation slows more than expected on subsidy impact
The steady growth of prices in Tokyo will likely encourage the BOJ to continue paring back the degree of monetary easing by nudging rates higher towards a neutral level
INFLATION in Tokyo slowed more than expected as government subsidies meant to offset energy costs distorted readings, a result that is not likely to deter the central bank from considering more hikes to its benchmark interest rate.
Consumer prices excluding fresh food in the capital rose 2.2 per cent in February from a year earlier, according to the Ministry of Internal Affairs on Friday (Feb 28). That missed the median estimate of 2.3 per cent but was above the Bank of Japan’s (BOJ) target.
Inflation barring fresh food and energy gained 1.9 per cent, in a sign that underlying inflation is holding steady.
The steady growth of prices in Tokyo, a leading indicator for the national trend, will likely encourage the BOJ to continue paring back the degree of monetary easing by nudging rates higher towards a neutral level. Economists surveyed by Bloomberg expect officials to wait until summer before hiking again after they raised the rate just last month.
Still, in a risk scenario, the rate increase could come as early as the meeting ending May 1, according to the survey. Through March 2027, the BOJ expects inflation to stay at or above its price target of 2 per cent.
The pace of inflation in the capital has been slower than the national trend due in part to education subsidies that are only in effect in Tokyo. The main gauge for national prices accelerated to 3.2 per cent in January.
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Friday’s data showed that increases in energy costs in Tokyo slowed to 6.9 per cent year on year in February from 13.3 per cent a month earlier. Processed food price growth picked up a bit to 5 per cent, while price growth for durable goods, educational and recreational goods and lodging all slowed.
The central bank’s benchmark price gauge excludes volatile prices of fresh food, but officials seem to be paying closer attention to this category of goods, as households are feeling the pain of higher prices for everyday staples ranging from rice to cabbage. Governor Kazuo Ueda said earlier this month that he will keep food inflation in mind, as it may not be temporary and could affect consumers’ inflation expectations.
The overall inflation rate in Tokyo slowed to 2.9 per cent in February from 3.4 per cent a month earlier. Soaring prices for fresh food cooled just a bit in the latest month.
Even as the economy expanded for a third consecutive quarter at the end of 2024, Prime Minister Shigeru Ishiba kept price relief measures in place. Mounting frustration over the rising costs of living was a factor that led to his predecessor Fumio Kishida stepping down. Despite the subsidies, Ishiba’s support ratings have been falling. BLOOMBERG
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