Japan inflation ticks up in May to 2.5 percent

TOKYO

The pace of Japanese inflation accelerated in May partly due to higher energy bills, government data showed on June 21, as analysts speculate on the timing of the Bank of Japan's next rate hike.

The Consumer Price Index (CPI) rose 2.5 percent year-on-year, compared with the 2.2 percent logged in April by the Internal Affairs Ministry.

The ministry said that "energy, including electricity and gas bills, contributed" to the acceleration, which was slightly lower than market expectations of 2.6 percent.

While the United States and other major economies have battled sky-high inflation in recent years, price rises in Japan have been less extreme.

The Bank of Japan is targeting sustainable, demand-driven inflation of two percent.

While the CPI has been above this target since April 2022, the central bank has warned it was due to unstable factors such as the war in Ukraine.

Recently, however, the BoJ has taken cautious steps away from its long-standing ultra-loose monetary policies.

The BoJ said last week it would trim its vast hoard of government bonds, having raised interest rates for the first time since 2007 in March.

"With inflation remaining somewhat sticky... a further rate hike in July or September is likely", although "the timetable for that may remain unclear", Katsutoshi Inadome, senior strategist at SuMi TRUST, said earlier this month.

Data released earlier this month showed that Japan's household spending rose in April for the first time in 14 months, with wage growth at the fastest pace in three decades.

Wage growth is a key factor for the BoJ's policy decisions, as it seeks a "virtuous cycle between wages and prices".