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Investing.com-- Tokyo consumer price index inflation cooled slightly in May, while core inflation rose past expectations to an over two-year high– a trend that gives the Bank of Japan more impetus to raise interest rates.
Tokyo core CPI, which excludes volatile fresh food prices, rose 3.6% year-on-year in May, government data showed on Friday. The reading was higher than expectations of 3.5% and picked up from the 3.4% seen in the prior month, while also touching its highest level since early-2023.
A core reading that excludes both fresh food and energy prices rose to 3.3% y-o-y in May from 3.1% in the prior month. The print is closely watched as a gauge of underlying inflation by the BOJ, and remained well above the central bank’s 2% target.
Headline Tokyo CPI was steady at 3.4% in May.
Tokyo inflation usually acts as a bellwether for nationwide Japanese inflation, given the region’s economic dominance in the country. Friday’s data adds to bets that the BOJ will have more impetus to raise interest rates soon, especially with a persistent pick-up in Japanese inflation.
Friday’s data also comes just a week after CPI data showed a bigger-than-expected pick-up in nationwide inflation in April, which added to bets that the BOJ will hike in Japan.
The central bank is expected to raise interest rates by at least 25 basis points in July, amid a steady pickup in inflation. Core inflation has also trended well above the bank’s 2% annual target.
Strong Japanese inflation comes amid a sharp pick-up in wages through 2024 and 2025, as labor unions clinched two straight years of bumper wage hikes during springtime negotiations.
This trend is expected to temporarily boost private consumption, supporting the Japanese economy but also underpinning inflation.