Japan Inflation Hits Over 7-Year High on Rising Fuel, Food Costs

By Ambar Warrick

Investing.com-- Japan’s core consumer price index (CPI) rose to an over seven-year high in July, amid rising fuel prices and a widening trade deficit.

Core CPI rose to an annual rate of 2.4% in July, compared to a 2.2% rate in June, data from the Statistics Bureau showed on Friday. The reading was in line with expectations.

But the data also marks a fourth straight month where the CPI index has overshot the central bank’s 2% target. Including volatile items such as the cost of fresh food, Japan’s national CPI rose 2.6% in July, touching its highest level in nearly eight years.

Japan has been struggling with higher commodity prices this year, given its large dependence on petroleum, coal, and liquefied natural gas imports. This trend saw the country post a trade deficit for a 12th consecutive month in July, as rising import costs offset a steady recovery in exports.

The Bank of Japan (BoJ) has hesitated in raising interest rates to help combat inflation, and has so far maintained its ultra-loose monetary policy in the wake of knock-on effects from the COVID-19 pandemic.

At its previous meeting, the BoJ raised its inflation forecast for the current fiscal year to 2.3% from 1.9%. It also slashed the year’s growth forecast to 2.4% from 2.9%, warning of continued pressure from the pandemic and rising commodity prices.

The BoJ has bucked a global trend of interest rate hikes by major central banks, which has seen the Japanese yen depreciate sharply to the dollar this year. The currency came close to record lows earlier in 2022.

The yen moved little on Friday after the data, sticking to around 135.81 to the dollar.

But the Japanese economy may see some relief in the latter half of 2022, given that oil prices have fallen sharply from their highs this year. Uncertainty over the path of U.S. interest rates has also benefited the yen in recent weeks.