Japan's Core Inflation Slows to 3% in February A Deceleration Amid Rising Prices

Japan's Core Inflation Slows to 3% in February A Deceleration Amid Rising Prices

The latest data reveals that Japan's core inflation has slowed to 3% year-on-year in February, a welcome deceleration amidst rising prices. However, this rate remains above the Bank of Japan's (BOJ) 2% target, which has been exceeded every month since April 2022.

Government Subsidies and Inflationary Pressures

The slowdown in core inflation can be attributed to government subsidies for electricity and gas bills, which have helped alleviate the burden on households. Nevertheless, rising prices for essential items such as petrol, food, and accommodation continue to strain household budgets. The internal affairs ministry has noted that measures taken by Prime Minister Shigeru Ishiba, including subsidies, releasing stockpiled rice, and promoting wage increases, are aimed at protecting people's livelihoods from high prices.

Record-High Rice Prices and Cabbage Shock

The February data also revealed record-high rice prices, up 81% year-on-year, a trend dubbed cabbage shock by local media. This is primarily due to supply chain problems and last year's record summer heat and heavy rain that ruined crops. The price of cabbage has risen an astonishing 130%, highlighting the impact of volatile fresh food prices on inflation.

Tariff Uncertainty

The minority government faces uncertainty over tariffs, which could further exacerbate inflationary pressures. As a result, the BOJ may delay rate hikes until July, as suggested by Marcel Thieliant of Capital Economics.

Core Inflation Accelerates Slightly

Despite the deceleration in core prices, underlying inflation accelerated slightly to 2.6% year-on-year, reaching an 11-month high. This suggests that the BOJ could hike rates at its next meeting in May.

Bank of Japan's Outlook

The BOJ left its key interest rate unchanged this week, warning about the global economic outlook given US President Donald Trump's trade policies. Governor Kazuo Ueda emphasized that rising prices are contributing negatively to people's lives and that a rise in food prices can affect the basic pace of inflation.

Conclusion

In conclusion, Japan's core inflation has slowed to 3% year-on-year in February, but remains above the BOJ's target. The government's measures to address high prices and promote wage increases are aimed at protecting people's livelihoods. As the economy navigates tariff uncertainty and volatile fresh food prices, the BOJ will continue to monitor the situation closely before making any rate hike decisions.

Keywords Japan inflation, core inflation, Bank of Japan, interest rates, tariffs, government subsidies, rice prices, cabbage shock

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CEO / Co-Founder

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