Japan's core inflation picks up in July, but demand-driven growth below 2%
July core consumer prices rise in line with forecasts
CPI excluding fuel, food rises 1.9% yr/yr in July
"Core core" inflation dips below 2% for first time in 2 yrs
Adds detail, economist comments
By Makiko Yamazaki and Satoshi Sugiyama
TOKYO, Aug 23 (Reuters) -Japan's core inflation accelerated for a third straight month in July, data showed on Friday, but a slowdown in demand-driven price growth could complicate the central bank's decision on further interest hikes in coming months.
The nationwide core consumer price index (CPI), which excludes fresh food items, rose 2.7% from a year earlier, slower than a 2.6% climb in June. It matched the median market forecast and put the inflation rate at or above the central bank's 2% target for the 28th straight month.
But the "core core" index, which excludes fresh food and energy costs and is closely watched by the Bank of Japan (BOJ) as a key gauge of broader inflation trends, rose 1.9% after increasing 2.2% in June. It dipped below the key 2% line for the first time since September 2022.
"The increase in the core CPI reflected a phase-out of government subsidies to curb household utility bills, and with that factor excluded, the overall inflation has been slowing," said Masato Koike, senior economist at Sompo Institute Plus.
With utility bill relief reinstated and the yen's recent rebound now pushing down import costs, core CPI growth "is likely to slow down hereafter," he said.
Inflation data is seen as key to further decisions on rate hikes by the BOJ, which surprised markets in July by raising interest rates to a 15-year high and signalling its readiness to hike borrowing costs further on growing prospects that inflation will durably hit its 2% target.
The BOJ's hawkish tone led the battered yen to soar and Tokyo stocks to plunge in their biggest single-day rout since 1987's Black Monday sell-off. Although markets have since stabilised, BOJ Governor Kazuo Ueda has been asked to discuss the July rate decision at parliament on Friday.
Data released last week showed Japan's economy rebounded much faster than expected in the second quarter on robust consumption, backing the case for the central bank to continue its monetary policy tightening campaign.
In a Reuters poll this month, 57% of economists predicted the BOJ would raise borrowing costs again by the end of the year.
Reporting by Makiko Yamazaki and Satoshi Sugiyama; Editing by Jamie Freed and Sam Holmes
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