Japan Inflation Data Strengthens Call For Rate Hike

(RTTNews) - Japan overall consumer price inflation softened in February largely due to government subsidies for energy but the increase in core inflation together with higher wage growth and services inflation put pressure on the Bank of Japan to lift key interest rates.

Excluding fresh food and energy, inflation rose to 2.6 percent from 2.5 percent in the previous month, the Ministry of Internal Affairs and Communications said Friday.

However, consumer price inflation logged 3.7 percent in February, down from 4.0 percent in January. Likewise, excluding fresh food, inflation softened to 3.0 percent from 3.2 percent in the prior month.

On a monthly basis, the consumer price index edged down 0.1 percent, which was the first fall in five months.

ING economist Min Joo Kang said upward pressure on services and solid wage growth support an interest rate hike in May.

With Shunto results possibly pushing up wage growth well above 5 percent, inflation and private consumption figures are worth watching, the economist noted. The BoJ will assess how companies pass on input cost increases to retail prices, she observed.

As companies typically lift prices in the first month of their fiscal year, April data is key, the economist added. Capital Economics' economist Marcel Thieliant said the BoJ will wait for the dust to settle and will only raise rates at its July meeting. Earlier, BoJ Governor Kazuo Ueda argued that uncertainty about US trade policy has rapidly increased. The continued strength in inflation supports the view that the BoJ will tighten policy more aggressively than most anticipate, Thieliant added.

Earlier this week, the BoJ had kept its key interest rate unchanged at around 0.5 percent after raising the rate by a quarter point in January.