Two-year high price growth in Tokyo supports Bank of Japan's rate hike course

According to data from Japan's Ministry of Internal Affairs, the core rate of consumer price growth in Tokyo excluding fresh food amounted to 3.6% in May, accelerating from April's 3.4%. The value exceeded the average estimate of economists of 3.5% and hit a record high since January 2023. The headline inflation rate matched the April figure at 3.4%.

As emphasized by Bloomberg, the statistics are partly distorted by political factors, including the waning impact of last year's tuition fee cuts. While Tokyo's figures serve as a leading indicator of inflationary trends nationwide, high school tuition subsidies were only available in the capital.

The main driver of the price increase recorded in Tokyo in May was the rise in food costs, except for fresh produce, which accelerated to 6.9% from 6.4% in the previous month.

As noted by Chief Market Economist at SMBC Nikko Securities Yoshimasa Maruyama, the rise in food prices has led to a decline in real wages of the population and created a negative impact on the economy. According to the expert, the Bank of Japan is considering tightening its monetary policy in this regard.