Japan's August core consumer prices rise 1.7% yr/yr

Japan's core consumer prices increased by 1.7% year-on-year in August, remaining below the 2% threshold for the eighth consecutive month, according to government data released on Friday. The nationwide consumer price index, excluding volatile fresh food, saw a slower rise of 1.8% in July, with energy prices falling due to government subsidies for electricity and gas bills.

The Bank of Japan will likely raise its key policy rate, possibly to a 31-year high of 1.25%, to counter inflationary risks from rising oil prices and a weak yen. The Middle East conflict has led to concerns over supplies of oil-derived naphtha, a crucial raw material for plastics, packaging materials, and printing ink solvents, prompting companies to raise prices.

Food prices, excluding fresh items, climbed by 2.7% in August, primarily driven by higher costs for potato chips and other snacks due to rising raw material costs. This growth rate slowed from 3.0% in July. Green tea prices surged by 31.5%, the largest increase since 1971, due to a global matcha boom. Rice prices, however, fell by 15.7%, the biggest drop since April 2005, as inventories increased.

Energy costs decreased by 0.7% year-on-year, following a 0.6% rise in July, with electricity and city gas bills falling by 2.4% and 0.8%, respectively. Gasoline prices declined by 2.6% due to government subsidies. Accommodation fees dropped by 1.4%, with some operators reducing prices as the inbound boom begins to cool. The core-core CPI, which excludes both energy and fresh food, rose by 1.9% in August.