Tokyo CPI inflation eases from 41-year high in February

By Ambar Warrick

Investing.com -- Consumer inflation in Japan’s capital grew at a slower pace in February than the prior month, data showed on Friday, indicating that price pressures in the country may be easing after surging to over 40-year highs in recent months.

The Tokyo core Consumer Price Index (CPI) rose 3.3% in the 12 months to February, data from the Statistics Bureau showed, in line with forecasts and lower than last month’s reading of 4.3%.

On a monthly, basis, Tokyo core CPI rose 0.3% in February, compared to a 0.1% rise in the prior month.

While the annualized reading fell to levels last seen in October, it still remained relatively elevated, heralding a similar trend in countrywide inflation data, which is due later in March. Nationwide inflation was trending at 41-year highs in January, at twice the Bank of Japan's 2% annual target range.

Overall CPI inflation in Tokyo, which includes volatile items such as fresh food, rose 3.4% in February, compared to a 4.4% rise in the prior month.

Food, fuel, and utilities remained the biggest contributors to the inflation reading, albeit at a smaller pace in February, as lingering disruptions from the Russia-Ukraine war ramped up the cost of Japan’s imports.

Weakness in the yen also contributed heavily to rising import costs, as a widening gap between local and U.S. interest rates saw investors dump the Japanese currency. The yen rose 0.1% on Friday.

Still, the easing price pressures come in line with a forecast by the Bank of Japan that inflation will ease in the near term, owing to some supply chain improvements. But the bank warned that inflation will pick up again by mid-to-late 2023, and that its 2% annual target will likely only be achieved by 2025.

High inflation puts pressure on the BOJ to eventually tighten monetary policy, although incoming Governor Kazuo Ueda recently said that the bank’s ultra-loose policy will remain unchanged in the near-term.

A spike in countrywide inflation weighed heavily on the Japanese economy, with fourth quarter GDP largely missing estimates due to falling business investment.

This is likely to give the BOJ more impetus to maintain its ultra-accommodative policy.