By Leika Kihara
TOKYO, April 24 (Reuters) – Japan’s core inflation slowed below the central bank’s 2% target for a second straight month in March, data showed on Friday, as government fuel subsidies and moderating food inflation offset price pressures from the Iran war-induced energy shock.
Analysts expect inflation to accelerate back above the Bank of Japan’s target in coming months, as companies begin to pass on higher fuel costs from the Middle East conflict.
The core consumer price index (CPI), which strips away the effect of volatile fresh food costs, rose 1.8% in March from a year earlier, matching a median market forecast. It followed a 1.6% rise in February.
The data is among factors the Bank of Japan will scrutinise at next week’s policy meeting, where the board is widely expected to hold off raising interest rates but signal its readiness to hike to counter mounting price pressures.
“Cost-push pressure from the Middle East conflict will likely boost prices not just for energy but a broad range of goods,” said Masato Koike, senior economist at Sompo Institute Plus.
“Government subsidies may curb some of the upward pressure but not all, making it hard for real wages to stay positive,” he said, projecting the BOJ to forgo raising rates in April.
A separate index excluding the effect of volatile fresh food and fuel, which is closely watched by the BOJ as a better gauge of demand-driven price moves, rose 2.4% in March from a year earlier after a 2.5% gain in February.
Markets have been rattled after the Iran war effectively shut the Strait of Hormuz, a chokepoint for about a fifth of global oil and gas flows, driving up crude oil prices and the safe-haven dollar against the yen.
The war has complicated the BOJ’s rate-hike plan by adding to inflationary pressure, while weighing on an economy heavily reliant on fuel imports from the Middle East.
Japan’s wholesale inflation jumped in March as companies passed on rising raw material costs, which will likely translate into higher prices for consumer goods and services.
The BOJ exited a massive, decade-long stimulus in 2024 and has raised interest rates several times including in December, when it lifted the benchmark policy rate to 0.75% on the view Japan was on the cusp of durably meeting its 2% inflation target.
With inflation hovering around its target for nearly four years, the BOJ has signaled its readiness to keep raising rates to levels deemed neutral to the economy.
(Reporting by Leika Kihara; Editing by Sam Holmes)
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