Core consumer inflation in Japan's capital stayed above the central bank's target and accelerated in March on steady gains in food costs, data showed on Friday, keeping alive market expectations of a near-term interest rate hike.
Service-sector inflation also perked up as rent prices rose ahead of the April start of Japan's new fiscal year, backing up the Bank of Japan's view that price pressures were broadening.
The data will be among key factors the BOJ will scrutinise at its next policy meeting on April 30-May 1, when the board is set to issue fresh quarterly growth and price forecasts.
"Judging from today's data, nationwide core inflation will accelerate above 3% in the first half of this year before slowing as the boost to import costs from the weak yen eases," said Masato Koike, economist at Sompo Institute Plus.
"Consumption is weak, so the key is whether households can swallow further price hikes," he said.
The Tokyo consumer price index (CPI), which excludes volatile fresh food costs, rose 2.4% in March from a year earlier, data showed, faster than a median market forecast for a 2.2% increase. It accelerated from a 2.2% gain in February.
A separate index for Tokyo that strips away both fresh food and fuel costs - closely watched by the BOJ as a measure of domestic demand-driven prices - rose 2.2% in March from a year earlier after a 1.9% rise in February, the data showed.
The main driver of the increase was food prices, which rose 5.6% in March for their fastest year-on-year pace of gain since January 2024 - and compared with a 5.0% rise in February.
The cost of Japan's staple rice surged 92.4% in March, the largest increase since 1976, a sign of the pain households were feeling from rising living costs.
"The rise in food and beverage prices is gradually becoming permanent," said Saisuke Sakai, chief economist at Mizuo Research & Technologies, adding that such persistent price gains could prod the BOJ to hike interest rates in June or July.
Service-sector inflation accelerated to 0.8% in March from 0.6% in February due partly to a 1.1% increase in rent, which was the fastest year-on-year rise since 1994, the data showed.
The BOJ exited a decade-long, radical stimulus programme last year and raised short-term interest rates to 0.5% in January on the view Japan was on the cusp of sustainably hitting its 2% inflation target.
Governor Kazuo Ueda has said the BOJ will keep pushing up borrowing costs if continued wage gains underpin consumption and allow firms to raise prices, thereby maintaining inflation stably around its 2% target.
The rising cost of living has drawn the attention of some BOJ board members, who warned at their March policy meeting that sticky food inflation could affect broader price moves and public perceptions of future inflation.
