Japan’s Inflation Slows After Resumption of Energy Subsidies #JapanFinance

(Bloomberg) — Japan’s consumer inflation slowed for the first time in four months after the resumption of government subsidies lowered utility costs, in a result that backs the case for the Bank of Japan to stay on a gradual path to further rate hikes.

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Consumer prices excluding fresh food rose 3.0% from a year ago in February, decelerating from a 3.2% pace in January, the ministry of internal affairs said Friday. Economists had expected a 2.9% gain. Overall inflation also eased, slipping to 3.7% from 4% in the prior month.

The data were largely in line with the inflation report for Tokyo, a leading indicator that suggested a slowdown resulting from the energy subsidies. Nationally, the subsidies shaved 0.33 percentage point off the overall inflation gauge in February. The key price gauge stayed at or above the BOJ’s 2% target for a 35th month.

Friday’s inflation report comes two days after the BOJ held its policy settings steady as authorities assessed the effects of a January hike as well as the implications of a changing landscape for global trade. At a post-decision press conference, BOJ Governor Kazuo Ueda said domestic data were broadly in line with the bank’s outlook, while uncertainties over the global economy were rising.

Ueda said the bank will likely get a better sense of the overseas outlook in early April, when the US is expected to detail plans for reciprocal tariffs on sectors including cars, pharmaceuticals and semiconductors.

In the latest economic outlook report, the bank projects the core price gauge will average 2.7% this fiscal year and 2.4% next year.

Most BOJ watchers expect the bank to raise its policy rate again in June or July and maintain a pace of one hike roughly every six months until it reaches the terminal point of the tightening cycle.

While headline inflation cooled, a deeper measure suggests that underlying price pressure remains steady. Prices excluding energy and fresh food rose 2.6%, the fastest pace in around a year. The yen’s persistent weakness, unseasonable weather and a labor shortage are among factors feeding into higher costs of a variety of food products, raising concerns for households as real wages remain stagnant.

Higher costs of living have weighed on retail sentiment, with a gauge of consumer confidence dipping in February to the lowest level in almost two years. Data last week showed that households spent much less than expected in January as they cut back on discretionary outlays.