Tokyo CPI, core inflation up slightly more than expected in August

Investing.com-- Consumer price index inflation in Japan’s capital grew more than expected in August as stronger wages spurred further improvements in private spending, potentially setting the stage for more interest rate hikes by the Bank of Japan.

Tokyo Core CPI- which excludes volatile fresh food prices- grew 2.4% year-on-year in August, government data showed on Friday. The reading was higher than expectations that it would remain steady at 2.2% from the prior month .

A core CPI reading that excludes both fresh food and energy costs, and is used as a key gauge of underlying inflation by the BOJ, rose 1.6% y-o-y in August from 1.5% in the prior month. But the reading still remained shy of the BOJ’s 2% annual target. 

Headline CPI inflation grew 2.6% y-o-y in August from 2.2% in the prior month, picking up sharply on higher food costs. 

Tokyo inflation data usually heralds a similar trend from nationwide inflation data, which is due later in September.

Friday’s reading shows that the bumper wage increases seen earlier this year are boosting private spending as outlined by the BOJ, and are expected to further underpin growth and inflation expectations in the coming months. 

Such a scenario is in line with the BOJ’s outlook, giving the central bank more headroom to raise interest rates further. 

The BOJ had hiked rates by 15 basis points in late-July, with Governor Kazuo Ueda flagging more potential hikes on improving growth and inflation.