Core consumer prices in Japan rose 2.5% in May from a year earlier, data showed Friday, marking an acceleration from the previous month and keeping the central bank on track of a further rise in interest rates in the coming months.
The increase in the core Consumer Price Index (CPI), which excludes volatile fresh foods, compared with the median market forecast of a 2.6% gain and followed a increase of 2.2% in April.
However, the index that excludes fresh food and fuel, closely watched by the Bank of Japan as the best gauge of domestic demand-driven inflation, rose 2.1% in May from a year earlier , which represents a slowdown from the 2.4% increase recorded in April.
The Bank of Japan ended negative rates and controls on bond yields in March, in a historic shift from a sweeping, decade-long stimulus program.
With inflation having exceeded its 2% target for two years, she has also hinted that she will raise short-term interest rates to levels that neither cool nor overheat the economy, which analysts say , would be between 1 and 2%.
Many economists expect the BOJ to raise interest rates to 0.25% this year, but they are divided on whether the hike will happen in July or later in the year.
BOJ Governor Kazuo Ueda said the central bank would raise rates if it became increasingly confident that inflation would sustainably reach 2% thanks to robust domestic demand and higher wages.
Recent signs of weakness in consumption remain worrying. Japan’s economy contracted in the first quarter, partly due to a 0.7% drop in consumption as rising costs of living discouraged households from increasing spending. (Reporting by Leika Kihara, Editing by Shri Navaratnam)
