Core Inflation in Japan Accelerates, But Key Core-Core Inflation Slows

• Core inflation in Japan, which excludes fresh food prices, rose to 2.7% year-on-year in July, up from 2.6% in June.
• Core-core inflation, closely watched by the Bank of Japan, slowed to 1.9% in July from 2.2% in June.
• The divergence in inflation rates complicates the Bank of Japan’s decision-making on future interest rate hikes.

Tokyo, August 23 (FFN) – Core inflation in Japan saw a slight acceleration last month, but the more closely watched core-core inflation, which excludes both food and energy prices, slowed significantly. This development complicates the Bank of Japan’s decision on further interest rate hikes in the coming months, according to reports from AFP and Reuters.

Core inflation, which excludes fresh food prices, reached 2.7% year-on-year in July. This is a slight increase compared to 2.6% in June. The rise in core consumer prices met economists’ expectations but moved inflation further away from the central bank’s target of 2%.

On the other hand, core-core inflation, a measure that excludes both food and energy prices and is more closely monitored by the central bank, slowed to 1.9% in July, down from 2.2% in June. This drop below the 2% inflation target marks the first time since September 2022 that core-core inflation has fallen below this threshold.

This divergence in inflation trends poses a challenge for the Bank of Japan as it deliberates on future interest rate increases. The central bank last raised interest rates at the end of July, marking only the second rate hike in 17 years. The main interest rate increased to 0.25% from the previous range of 0% to 0.1%.