Tokyo CPI inflation grows less than expected in May

Investing.com-- Consumer price index inflation in Japan’s capital read below expectations in May, data showed on Friday, amid steady food prices and increased government spending to ease electricity costs. 

The Tokyo core CPI, which excludes fresh food prices, rose an annualized 3.2% in May, data from the Statistics Bureau showed on Friday. The reading was lower than expectations for a reading of 3.3% and the prior month’s print of 3.5%.

The core figure was also at its lowest level since March, but remained in sight of a 40-year peak hit in January, at 4.3%.   

Including fresh food prices, Tokyo CPI inflation grew 3.2% in May, missing expectations for a rise of 3.9%, and the prior month’s reading of 3.5%.

The reading showed that Japanese inflation was stabilizing after an unexpected spike in April, as food prices steadied and as electricity prices continued to weaken thanks to government subsidies.

Stability in global commodity markets and easing fuel import prices also helped bring down inflation over the month. 

The soft inflation reading came on the heels of positive business activity data released earlier this week, which showed that the Japanese economy was recovering steadily from the COVID-19 pandemic. 

The Tokyo inflation reading usually signals a similar trend in nationwide inflation, given that the area is the biggest contributor to Japan’s GDP. A further decrease in inflation will put less pressure on the Bank of Japan to begin tightening policy this year.

But despite the weaker-than-expected reading, inflation still remained relatively high in the country, trending well above the BOJ’s 2% annual target rate.

A weaker yen has also kept inflation pressures high over the past year. The Japanese currency hit a six-month low against the dollar this week, as it came under pressure from a dovish outlook for the BOJ and expectations that U.S. interest rates will remain higher for longer.