Japan inflation cools to four-year low as subsidies ease living costs amid energy turmoil – Firstpost

Japan’s core inflation slowed to a four-year low in April as government subsidies for fuel and education helped ease pressure on household budgets, though rising global energy prices linked to the conflict in West Asia are expected to rekindle inflationary pressures in the months ahead.

Data released on Friday by Japan’s Ministry of Internal Affairs and Communications showed that the country’s core consumer price index (CPI), which excludes volatile fresh food prices, rose 1.4 per cent year-on-year in April. The reading was below market expectations of 1.7 per cent and sharply slower than the 1.8 per cent increase recorded in March.

The latest figure marked the weakest pace of core inflation since March 2022 and highlighted the impact of renewed subsidy measures introduced by Prime Minister Sanae Takaichi to contain rising living costs.

The softer inflation print comes at a critical juncture for the Bank of Japan, which has been gradually moving away from years of ultra-loose monetary policy. While policymakers have signalled their readiness to continue raising interest rates, the slowdown in inflation has complicated expectations of an imminent tightening move.

A separate inflation index that excludes both fresh food and fuel — closely watched by the BOJ as a gauge of underlying demand-driven inflation — rose 1.9 per cent in April, slowing from 2.4 per cent in March.

Economists said the moderation in inflation was likely to prove temporary as geopolitical tensions continue to push up oil prices.

Japan’s inflation outlook has become increasingly tied to developments in West Asia after the conflict around Iran disrupted global energy markets and fuelled concerns over supply flows through the Strait of Hormuz, a key shipping route for oil and gas exports.

The resulting surge in crude oil prices has raised import costs for Japan, which relies heavily on fuel imports from the region. A weaker yen has further amplified the impact by making overseas purchases more expensive.

Wholesale inflation accelerated in April at the fastest pace in three years, driven by rising energy and chemical goods prices, adding to speculation that the BOJ may still proceed with another interest-rate increase despite slowing consumer inflation.

BOJ board member Junko Koeda said this week that policymakers were carefully assessing how quickly higher wholesale prices were feeding into consumer inflation.

“I believe it’s reasonable to raise the policy interest rate at an appropriate pace to address high inflation while also considering the trade-offs for the economy,” Koeda said, warning that the energy shock could push underlying inflation above the central bank’s 2 per cent target.

Financial markets are now closely watching the BOJ’s June 15-16 policy meeting, where investors remain divided over whether the central bank will raise its benchmark short-term policy rate from 0.75 per cent to 1 per cent.

Attention is also turning to a speech by BOJ Governor Kazuo Ueda scheduled for June 3, which is expected to provide fresh clues on the central bank’s policy outlook.

The April data also showed easing price pressures across several consumer categories. Education costs fell 10.6 per cent from a year earlier due to subsidy programmes, while the pace of increases in processed food prices slowed.

Rice prices, which had surged nearly 100 per cent during the same period last year, rose only 0.6 per cent in April, indicating a significant cooling in food inflation.

Service-sector inflation — a key indicator of domestic demand strength and wage-driven price growth — slowed to 0.9 per cent, suggesting broader inflation momentum remains relatively subdued despite higher labour costs.

For Japanese households, the slowdown in inflation offers temporary relief from rising living expenses. However, economists caution that escalating energy prices and prolonged geopolitical tensions could quickly reverse the trend and place renewed pressure on consumers and policymakers alike.