(Bloomberg) -- Japan's key inflation gauge edged lower in May, adding to pressure on the Bank of Japan, which faces a strengthening yen and expectations that price gains will weaken further.
Consumer prices excluding fresh food rose by 0.8% in May from a year earlier, with weaker gains in electricity prices among the largest factors slowing inflation, data from the internal affairs ministry showed Friday. The result compared with an economists' estimate of 0.7% and a reading of 0.9% in April.
Key Insights
- Economists said some of the recent fluctuations in core inflation are down to temporary factors such as the impact of an extended holiday that triggered a spike in overseas package tour prices and accommodation costs in April.
- Looking ahead, though, there are plenty of factors likely to further weaken price gains. Lower mobile phone charges and free preschool education are government-initiated moves that will weigh on price growth, as would a stronger yen and lower fuel prices. A sales-tax hike set for October will also pose a risk to consumption.
- With global central banks tilting toward interest rate cuts, the BOJ is already facing expectations it will move in a similar direction, particularly with inflation less than halfway to its 2% goal.
- Governor Haruhiko Kuroda said in an interview with Bloomberg this month that the BOJ still has room for big stimulus but cautioned that accumulating side effects also need to be considered.
What Bloomberg's Economists Say
"Looking ahead, we expect core inflation (excluding fresh food) to slow toward autumn. Policy-related factors -- lower mobile phone service charges and reduced education costs -- are the major drivers."
--The Asia Economist Team
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- Overall, Japan's consumer prices rose 0.7% in May in line with economists' median estimate.
- Stripping out energy and fresh food, consumer prices climbed 0.5%, also matching a median estimate.
--With assistance from Yoshiaki Nohara and Masahiro Hidaka.
To contact the reporters on this story: Shiho Takezawa in Tokyo at stakezawa2@bloomberg.net;Yuko Takeo in Tokyo at ytakeo2@bloomberg.net
To contact the editors responsible for this story: Malcolm Scott at mscott23@bloomberg.net, Henry Hoenig, Paul Jackson
©2019 Bloomberg L.P.
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