Tokyo CPI inflation falls more than expected to 22-month low in January

Investing.com-- Consumer price index inflation in Japan’s capital fell more than expected in January, falling below the 2% level for the first time in 20 months, although a bulk of the decline was driven by government measures to curb utility prices.

Tokyo core CPI inflation, which excludes volatile fresh food prices, grew an annualized 1.6% in January- its slowest pace of growth since March 2022, data from the Statistics Bureau showed on Friday. The reading was weaker than expectations of 1.9% and slowed from the 2.1% seen in December.

A core figure that excludes both volatile fresh food and energy prices fell to an annualized 3.1% from 3.5% in the prior month, reaching a near one-year low. The figure is closely watched by the BOJ as a gauge of underlying inflation.

Overall CPI inflation in Tokyo grew an annualized 1.6% in January, compared to a 2.7% rise in the prior month. The headline reading was also at its lowest level since March 2022.

The softer inflation reading was driven chiefly by a sustained decline in utility prices, which fell on government subsidies rolled out last year to help ease pressure on households from inflation.

Food prices still continued to grow persistently and were a key driver of inflationary pressures.

The inflation reading comes just a few days after a Bank of Japan meeting, where the central bank maintained its ultra-dovish policies. But Governor Kazuo Ueda gave the clearest signal so far that the bank will begin tightening monetary policy this year, especially as inflation moves closer to the bank’s 2% annual target.

The bank also slightly trimmed its inflation forecast for fiscal 2024, but warned that price pressures will likely remain above 2% in the near-term.

Easing inflation gives the BOJ less immediate impetus to begin tightening monetary policy.

Tokyo inflation is usually seen as a bellwether for nationwide inflation. Friday’s reading suggests that a devastating earthquake in central Japan, at the beginning of the year, likely had little immediate impact on inflationary pressures.

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