By Leika Kihara
TOKYO, Aug 28 (Reuters) – Annual core inflation in Tokyo accelerated in August for the third straight month, data showed on Friday, a sign of broadening price pressures that bolsters the case for an interest rate hike as soon as next month.
The data, which is considered a leading indicator of nationwide trends, came in the wake of Bank of Japan Deputy Governor Ryozo Himino’s warning over mounting inflationary risks that reinforced market expectations of a near-term rate hike.
Core consumer prices in Tokyo rose 1.8% in August from a year earlier, government data showed, slightly above market forecasts for a 1.7% gain and creeping near the BOJ’s 2% target.
The rise in the Tokyo core consumer price index (CPI), which excludes volatile fresh food costs, followed a 1.7% rise in July and was driven by steady price increases in food items.
An index stripping away the effect of fresh food and fuel, which is closely watched by the BOJ as a better gauge of trend inflation, rose 2.0% in August after a 1.8% gain in July.
The data will be among factors the BOJ will scrutinise at its next policy meeting set for September 17 to 18, when most market players expect a hike in the policy rate to 1.25%.
“A renewed escalation in the Middle East conflict is likely to push up energy costs with the subsequent second-round effects seen leading to broader price increases,” said Masato Koike, senior economist at Sompo Institute Plus.
“There’s little reason for the BOJ to wait until October,” he said, projecting the bank to raise rates next month.
After raising its key interest rate to a 31-year high of 1% in June, the BOJ kept monetary policy steady in July but issued its strongest comments to date about mounting inflation risk.
A recent spike in wholesale inflation, which reached 7.2% in July from a year earlier, has highlighted mounting price pressure from the Middle East conflict that will likely push up consumer prices with a lag, analysts said.
Sources have told Reuters that the BOJ is set to raise the rate as soon as September and is considering hiking more aggressively thereafter from the current pace of roughly two times a year. Under the current phase of normalisation, which started in 2024, the central bank has hiked rates at a pace of roughly twice a year.
While refraining from pre-committing to a September hike, deputy governor Himino on Thursday stressed the need for timely rate hikes with a focus on the risk of an inflation overshoot.
Markets are shifting attention to any comments BOJ Governor Kazuo Ueda could make during his expected attendance at the G20 finance leaders’ meeting to be held next week in North Carolina.
(Reporting by Leika Kihara; Editing by Muralikumar Anantharaman and Sam Holmes)
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