MNI BRIEF: Japan Aug Tokyo Core CPI Rises 2.5% Vs. July 2.9%

Tokyo’s core inflation slowed to 2.5% y/y in August from 2.9% in July but remained above 2% for the 10th straight month, data from the Ministry of Internal Affairs and Communications showed Friday.

The slowdown was driven by energy prices (-5.3% vs -0.8%), while food excluding perishables stayed firm (+7.4% vs +7.4%).

Core-core CPI, which strips out both fresh food and energy and is closely watched as a gauge of underlying inflation, rose 3.0% y/y in August, easing from 3.1% but marking a sixth straight month above 2%.

Processed food prices, which Bank of Japan officials view as sensitive to economic activity, climbed 6.0% in August, up from 5.6% in July. Services prices rose 2.0%, slightly slower than July’s 2.1%.

The BOJ expects underlying CPI to weaken temporarily on softer growth before moving back toward its 2% target. Officials judged recent inflation to be stronger than expected, with high rice prices boosting food costs, though they are monitoring how the recent decline in rice prices filters through. (See MNI POLICY: Underlying Inflation Key For BOJ's Slow Hikes) Firms also continue to pass on higher labour costs to retail prices.