Japan March CPI rises as expected, core CPI misses expectations

Investing.com-- Japan consumer price index inflation rose as expected in March with its pace of growth slowing slightly from the prior month amid some softer spending trends, which also saw core CPI inflation miss expectations. 

Core CPI inflation- which excludes volatile fresh food prices- grew 2.6% year-on-year in March, official data showed on Friday. The reading was slightly below expectations of 2.7% and down from the 2.8% seen last month.

A core CPI reading that excludes both fresh food and energy prices, and is watched as a key indicator of underlying inflation by the BOJ, rose 2.9% in March, compared to a 3.2% rise in Feb. The reading was now at its lowest pace of growth since November 2022, having fallen sharply from a 40-year peak hit last year. 

Headline CPI inflation rose 2.7% in March from 2.8% in the prior month, in line with expectations. 

Japanese consumer inflation has steadily eased over the past year, coming closer to the Bank of Japan’s 2% annual target as consumer spending slowed in the face of sluggish wage growth, a weak yen and easing economic growth.

But this trend is expected to change in the coming months, especially as major Japanese labor unions won bumper increases in wages this year. 

The BOJ also enacted its first ever interest rate hike in 17 years in March, citing expected stickiness in inflation as wages grew. But future rate hikes by the central bank remain uncertain, indicating that Japanese monetary policy is likely to stay loose in the near-term.

Such a scenario underpins inflation expectations in the country.