Japan March inflation. Ideas Later.

Japan March inflation rate rises to 1.8% on fuel cost hike amid Iran war

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TOKYO (Kyodo) -- Japan's core consumer prices in March rose 1.8 percent from a year earlier on higher energy costs due to surges in crude oil prices amid the Middle East conflict, government data showed Friday.

The rise in the nationwide consumer price index, excluding volatile fresh food, followed a 1.6 percent increase in February, when it climbed by less than 2 percent for the first time in nearly four years, according to the Ministry of Internal Affairs and Communications.

Core-core CPI, which strips away both energy and fresh food to reflect underlying price trends, rose 2.4 percent in March, decelerating from 2.5 percent in February.

For the fiscal year that ended March, core CPI increased 2.7 percent from a year earlier, largely reflecting surges in rice prices, which rose by a record-high 48.9 percent in the reporting year. But it stayed flat from fiscal 2024.

The end of the provisional gasoline tax on Dec. 31 led to a slowdown in rises in consumer prices in January and February but fresh inflationary pressure remains due to higher crude oil prices. The tax was abolished to ease the burden on households grappling with inflation.

For March, energy costs fell 5.7 percent after a drop of 9.1 percent in February, with gasoline falling 5.4 percent from the year before against a 14.9 percent drop the previous month.

Rising fuel costs could continue to be partially offset while a government subsidy program remains in place.

The government has decided to offer aid to wholesalers to keep the average retail price of gasoline to around 170 yen per liter. Before the financial support, the price hit an all-time high of 190.80 yen per liter on March 16. Japan depends on the Middle East for over 95 percent of its oil imports.

But a wide range of other products could see hikes in prices as manufacturers rush to find alternative sources after supplies of petroleum products were disrupted due to the effective closure of the Strait of Hormuz following the U.S.-Israeli attacks on Iran launched on Feb. 28, analysts said.

Petroleum products, specifically naphtha, are used to produce chemicals widely used in manufacturing products including plastics and critical medical supplies.

The weaker yen against the U.S. dollar, which has attracted buying as a safe-haven currency, is also feared to push up import costs, the analysts said.

Takeshi Minami, chief economist at the Norinchukin Research Institute, said it is highly likely that core inflation will remain elevated due to the protracted closure of the strait and rises in crude oil prices.

"Going forward, there is a possibility that the impact will spread widely, including price increases for petroleum-derived products such as plastics, rising food production costs due to difficulty in procuring fertilizers, and increasing logistics costs," he said.

Friday's data will be among materials to be studied at the Bank of Japan's two-day policy meeting starting Monday, when the Policy Board will decide if hiking the policy rate from the current 0.75 percent is necessary to sustainably achieve the 2 percent inflation target.

Without clear signals from Governor Kazuo Ueda about the need to hike rates amid the persistent uncertainties over the situation in the Middle East, market analysts expect that the bank will keep its monetary policy steady for now.

But Ueda has also signaled readiness to keep increasing the rate if the economy and prices move in line with its forecasts.

While the core inflation rate came below the 2 percent target for the second month in a row in March, the bank's new price index released late March to grasp underlying trends showed inflation rose 2.2 percent in February from the previous year.

The new indicator excludes the effects of policies such as free education programs, measures to ease the burden of fuel and utility costs as well as volatile fresh foods. The release of the index is widely viewed by markets as a precursor to a further interest rate hike.

Article source:  https://mainichi.jp/english/articles/20260424/p2g/00m/0bu/010000c