By Leika Kihara
TOKYO (Reuters) – Core inflation in Japan’s capital hit 2.5% to mark the fastest annual pace in nearly a year, data showed on Friday, well exceeding the central bank’s 2% target and keeping alive market expectations for further interest rate hikes.
The data came in the wake of the Bank of Japan’s decision last week to raise interest rates to 0.5%, the highest since the 2008 global financial crisis but still far below that of other major economies.
The increase in the Tokyo core consumer price index (CPI), which excludes volatile fresh food costs, matched a median market forecast and followed a 2.4% gain in December.
The index accelerated for the third straight month with the year-on-year rise matching a high hit in February last year.
Another index that strips away both fresh food and fuel costs, which is closely watched by the BOJ as a better gauge of demand-driven inflation, rose 1.9% in January from a year earlier after increasing 1.8% in December, the data showed.
Prices increased for food, fuel and a broad range of goods in a sign of the hit households face from rising living costs, the data showed.
The increase in services prices, by contrast, slowed to 0.6% in January from 1.0% in December, casting doubt on the BOJ’s view that rising wages will prod labour-intensive service sector firms to pass on rising costs.
The Tokyo inflation data, which is considered a leading indicator of nationwide figures, will likely keep pressure on the central bank to continue raising interest rates.
BOJ Deputy Governor Ryozo Himino said on Thursday that the central bank will continue to hike rates if the economy and prices move in line with the bank’s forecasts.
(Reporting by Leika Kihara; Editing by Sandra Maler and Sam Holmes)
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