Japan’s Inflation Slows Sharply on Subsidies Before BOJ Meet
The pace of Japan’s consumer inflation slowed abruptly on the back of government utility subsidies while remaining well above the Bank of Japan’s target hours before authorities are set to decide policy.
Consumer prices excluding fresh food rose 2.7% from a year earlier in August, slowing from a 3.1% gain in the previous month, the Ministry of Internal Affairs and Communications reported Friday. The slowest pace since November, it matched the median estimate of economists who predicted the resumption of subsidies to help households cope with record heat would exert a drag on the main gauge. The overall gauge slowed to 2.7% from 3.1%.
Still, a deeper price measure that also strips out energy advanced 3.3%, only slightly below the rate in the previous month, and matching analysts’ forecast.
The CPI data aren’t likely to shift the outcome of the BOJ’s policy decision Friday as policymakers are widely expected to stand pat. With no market ructions resulting from the highly anticipated rate cut by the Federal Reserve earlier this week, traders will now wait to see whether Governor Kazuo Ueda hints during his press conference that his board is getting closer to raising the rate.
“These CPI data are likely within the expectation of the BOJ and won’t affect today’s policy decision, as they are more focused on economic risks coming from tariffs while underlying inflation continues to improve,” said Taro Saito, head of economic research at NLI Research Institute. “They are looking for the right timing for a rate hike, and that is likely to come around January once they see economic risks have receded.”
Energy prices fell by 3.3% from a year earlier, the steepest decline since January 2024, and the subsidies for natural gas and electricity shaved 0.26 percentage point off the overall CPI gauge.
Other factors that slowed gains in the index included food. While food prices continued to rise, the pace of increase slowed, with processed food prices gaining 8%, versus 8.3% in July, and the price advance for rice slowing to 69.7% from 90.7%. Service prices increased 1.5% for a third month.
A major component of the release that pushed the gauge higher was gasoline, for which prices rose 0.6%, reversing from a 1.3% decline in July.
Persistent food inflation is likely to be a topic during the BOJ’s policy deliberations. Prices for chocolate, coffee, sushi, chicken and eggs were among gainers cited in the release.
The BOJ usually releases its policy statement around noon followed by Ueda’s press conference at 3:30 p.m.
Source : Bloomberg.com
