Japan August inflation slows ahead of expected rate hike

Tokyo (Sep 18) - Japan's inflation slowed slightly in August, according to official data released ahead of a Bank of Japan (BoJ) meeting expected to discuss an interest rate hike. Core inflation, which excludes volatile fresh food prices, fell to 1.7% in August from 1.8% but remains close to the 2% target set by the central bank.

The internal affairs ministry reported the reading, which was lower than market expectations. Government support for gasoline and electricity fees helped dampen inflation, according to the data. However, energy and gas prices have surged in recent weeks due to the Middle East crisis, which appears unlikely to end soon. Oil prices are now above $100 a barrel, and Japan, a resource-poor country, heavily relies on oil imports.

Despite inflation remaining unchanged in August, experts believe it will surpass the BoJ's 2% target before long. Some BoJ members have hinted at raising the key rate by 0.25 percentage points to 1.25%, the highest level in over three decades. Rising energy costs are anticipated to push inflation above the target soon, according to Marcel Thieliant of Capital Economics.