Consumer inflation in Japan will accelerate faster than previously estimated to 2.6 percent in the fiscal year ending next March, the Cabinet Office said Thursday, well above the Bank of Japan's target.

The government had estimated that consumer prices, which include energy and volatile fresh food items, would rise 1.7 percent in fiscal 2023. For fiscal 2024, prices are estimated to gain 1.9 percent.

The economic outlook for fiscal 2023, meanwhile, has been downgraded by the government amid slowing export growth. Japan's real gross domestic product is now forecast to grow 1.3 percent, instead of the 1.5 percent projected in January.

The revised forecasts were presented at a meeting of the Council on Economic and Fiscal Policy on Thursday as its members debated a budget framework for the next fiscal year.

Aggressive interest rate hikes by major central banks in the United States and Europe are threatening to curb demand for Japanese products.

A growing number of Japanese firms have been passing on higher import costs to consumers and raising wages to help cope with the rising prices of everyday goods. Private consumption and capital spending, key components of domestic demand, have been relatively resilient.

The expected rise in consumer prices, including for perishable food items, follows the 3.2 percent jump seen in fiscal 2022, the biggest increase since fiscal 1990.

Prime Minister Fumio Kishida, who is pursuing an economic agenda of wealth redistribution and increased growth, said the economy has seen positive developments, such as pay hikes and an increased appetite for investment among corporate sector actors.

"We need to pay due attention to the impact (of inflation) on real household incomes. Taking into account the viewpoint of ordinary people, the government will carefully look at economic and price conditions," Kishida told the government panel meeting at his office.

Entrenched inflation without robust wage growth would deal a significant blow to households, and real wages have been falling for months in Japan.

Still, Japanese firms agreed to an average pay hike of 3.58 percent at annual negotiations with labor unions, the best outcome in three decades.

The BOJ, for its part, has not budged over its stance of maintaining ultralow rates despite quickening inflation, as it seeks to ensure pay hikes continue so that it can attain its 2 percent inflation target stably.

The central bank is scheduled to update its economic and price outlooks when it holds a two-day policy meeting next week. The core consumer price index, which excludes volatile fresh food items, is forecast to gain 1.8 percent in fiscal 2023 and then 2.0 percent the year after.

The BOJ's fiscal 2023 forecast as of April is more conservative than the average 2.6 percent increase expected by private-sector economists, who were polled by the Japan Center for Economic Research.

But they expect core CPI to rise 1.67 percent in fiscal 2024, slower than expected by the central bank.

Resource-scarce Japan has been grappling with higher energy and raw material costs, magnified by a sharp drop in the yen.

The government has been reducing utility bills for households by lowering electricity, gasoline and kerosene prices, a move likely to curb CPI by around 0.5 percentage point in fiscal 2023, according to the government.

Private sector members of the government panel proposed that such subsidies should be phased out or scrapped. They also said that there should be more focus on supporting low-income families hit hardest by rising prices as the government shifts from COVID-era, crisis-mode spending to a more "ordinary" budgetary policy regime.