Investing.com-- Consumer price index inflation in Tokyo grew as expected in January, hitting a near two-year high as strong private spending continued to underpin inflation, with a reading on underlying inflation remaining close to the Bank of Japan’s target.
Headline CPI inflation accelerated to 3.4% year-on-year from 3% in the prior month, government data showed on Friday. The print hit its highest level since April 2023.
Core CPI- which excludes volatile fresh food prices- rose 2.5% y-o-y in Jan, hitting an 11-month high. The reading was in line with expectations and picked up from the 2.4% seen in the prior month.
A core CPI reading that excludes both fresh food and energy prices, and is watched as a gauge of underlying inflation by the BOJ, rose 1.9% y-o-y in Jan from the 1.8% in the prior month.
The print remained close to the BOJ’s 2% annual target.
Tokyo CPI usually acts as a precursor to nationwide inflation data, which is due in the coming weeks. Friday’s reading showed Japanese inflation was picking up steadily, justifying a more hawkish outlook for the BOJ.
Friday’s CPI data comes just a week after the BOJ raised interest rates by 25 basis points- its third rate hike since it kicked off a tightening cycle in early-2024. The central bank sees a “virtuous cycle” of higher wages driving up private consumption and inflation in the coming months, necessitating higher interest rates.
Still, the BOJ is not expected to raise rates further until at least mid-2025, until it has more clarity on Japan’s economic and political outlook.
Shunto wage negotiations in March, and the upper house elections in July are expected to be two key points of focus for the BOJ.