Japan’s core inflation hits two-year high in May

Japan’s core inflation rose to a more than two-year high in May, exceeding the central bank’s 2% target for over three years and increasing pressure on the Bank of Japan (BOJ) to resume rate hikes.

The core consumer price index (CPI), excluding volatile fresh food, rose 3.7% year-on-year in May, surpassing market forecasts and accelerating from April’s 3.5%. It marked the fastest pace since January 2023’s 4.2%.

A separate index, stripping out fresh food and fuel, climbed 3.3%, the highest since January 2024.

The rise was driven largely by persistent food inflation. Staple rice prices doubled compared to last year, while rice balls rose nearly 20% and chocolate bars by 27%.

Service-sector inflation also rose to 1.4% from 1.3%, reflecting firms passing on higher labour costs.

The data highlights the BOJ’s challenge in balancing inflation pressures with risks from U.S. trade uncertainty under President Trump. A Reuters poll showed a slight majority of economists expect the BOJ’s next rate hike in early 2026.

BOJ Governor Kazuo Ueda said underlying inflation remains below target but could re-accelerate. “If our forecasts materialise, we expect to keep raising interest rates,” he said.

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