Japan's consumer inflation accelerated to 3.3 percent in June from a year earlier, government data showed Friday, in a fresh sign of broadening price hikes that could fuel speculation of a policy tweak by the Bank of Japan.
The rise in core consumer price index, excluding volatile fresh food items, remained above the BOJ's 2 percent target for the 15th month. The pace of increase accelerated from 3.2 percent in May as food and durable goods prices rose and utilities raised electricity charges.
The figure boosted the likelihood of an upward revision to the BOJ's inflation outlook for the current fiscal year, analysts said, ahead of its two-day policy-setting meeting next week.
In June, a separate gauge that covers all items also rose 3.3 percent, exceeding a similar index of the United States for the first time in about eight years due to the BOJ's adherence to an ultraeasy monetary policy even while the Federal Reserve has raised interest rates aggressively since 2022.
"It appears inevitable that the BOJ will have to raise the inflation outlook and forecast a rise in core CPI in excess of 2 percent," said Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute.
"That being said, it's still far from a virtuous cycle of higher wages, strong consumption and further price hikes. And the BOJ is unlikely to change its view that ultralow rates are needed because its inflation target cannot be achieved stably," Kodama added.
The BOJ currently forecasts that core CPI will increase 1.8 percent in the year to March and 2.0 percent in fiscal 2024.
The core-core CPI, which strips away both energy and perishables, rose 4.2 percent, underscoring persistent inflationary pressures. But it slowed from 4.3 percent in May, prompting some economists to point to signs of peaking.
Markets have been speculating that the BOJ will modify its program to keep borrowing costs extremely low by placing a cap on 10-year Japanese government bond yields.
BOJ Governor Kazuo Ueda has pointed to "good buds" emerging, while noting that there is still some distance to achieving the 2 percent target.
The government on Thursday lifted its fiscal 2023 inflation outlook from 1.7 percent to 2.6 percent, well above the BOJ's target for stable inflation.
Among notable gainers, food prices surged 9.2 percent, in a blow to households. Durable household goods jumped 6.7 percent.
The government has been reducing utility bills for households by lowering gasoline, gas and electricity prices. Without such subsidies, core CPI would have risen 4.3 percent, according to the ministry.
Energy prices dropped 6.6 percent, helped by the government's support programs and stabilizing crude oil markets.
Economists say the effects of the higher fuel and raw material costs behind the recent bout of inflation will continue to dissipate in the coming months, bringing into focus whether price hikes will spread further to services from goods.
Service prices increased 1.6 percent in June, slowing from 1.7 percent a month earlier.
Yoshiki Shinke, senior executive economist at the Dai-ichi Life Research Institute, expects core CPI to undershoot 2 percent before the end of this year if the government's energy subsidies are extended beyond this fall.
Still, there remains a strong appetite among firms to pass on higher costs to consumers, meaning inflation may slow at a moderate pace, he added.
"Companies have been proactively passing on higher raw material costs to consumers, but if they also decide to transfer the increased costs of paying higher wages, this will raise service prices. We need to be careful about an upside risk (to CPI) as well," he added.
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