Japan’s price growth accelerated to fastest pace in two years in May

Japan’s key inflation gauge rose more than expected to a new two-year high. According to the Ministry of Internal Affairs, consumer prices excluding fresh food climbed 3.7% from a year earlier in May. That is the steepest rise since January 2023. 

Food inflation also accelerated, driven by a 102% surge in rice prices compared to May last year. Service prices, closely watched by the Bank of Japan, jumped 1.4% year-on-year.

A recent spike in oil prices due to escalating tensions in the Middle East can be another source of inflationary pressures in Japan, says Bloomberg. Additionally, local firms have grown more willing to pass their costs to consumers. Taihoku Databank says major food companies plan to raise prices on more products in June than they did a year ago.

Accelerating inflation reinforces the case for monetary tightening by the Bank of Japan as it awaits clarity on US tariffs and their impact on the economy. Bloomberg’s Taro Kimura projects a rate hike by 25 basis points to 0.75% at the July meeting.