Japan's core inflation accelerated in March due to persistent rises in food costs, data showed on Friday, complicating the central bank's task of weighing mounting price pressures against risks to the economy from higher U.S. tariffs.
The data comes ahead of the Bank of Japan's policy meeting next week, when the central bank is set to keep interest rates steady at 0.5% and cut its growth estimates as U.S. President Donald Trump's steep tariffs cloud the economic outlook.
The core consumer price index (CPI), which includes oil products but excludes fresh food prices, rose 3.2% in March from a year earlier, government data showed, matching a median market forecast and accelerating from a 3% gain in February.
Core inflation has now exceeded the BOJ's 2% target every month for three years in a row, in a sign of mounting price pressure as companies continue to pass on rising raw material and labour costs.
Inflation measured by an index that strips away the effects of both fresh food and fuel costs - closely watched by the BOJ as a broader price trend indicator - also accelerated to 2.9% in March from 2.6% in February.
Households faced price hikes for a wide range of goods including gasoline, hotel bills and chocolates. Rice prices spiked 92.5% in March from year-ago levels.
Services prices rose 1.4% year-on-year in March, much smaller than a 5.6% jump in goods prices in a sign the recent rise in inflation was driven mostly by high raw material costs.
"Food prices will stay elevated for the time being due to global bad weather and higher imported food costs," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"But Trump's tariffs could hurt domestic and overseas economies, which the BOJ must scrutinise. We see an increasing chance the BOJ's next interest rate hike will be delayed to July or later," he said.
The hit to consumption from rising living costs will add to headaches for policymakers struggling to quantify the potential damage from higher U.S. tariffs that threaten to derail a modest recovery in Japan's export-reliant economy.
"The recent U.S. tariff measures affect various industries and heighten uncertainty," Finance Minister Katsunobu Kato told Reuters on Thursday in the government's strongest warning yet as the two nations began trade talks. "We're deeply concerned they could affect Japan's economy, as well as the global economy."
Stubbornly high food prices and rising wages have kept consumer inflation above the BOJ's 2% target and underpinned market expectations the central bank will continue increasing interest rates from the current 0.5%.
But Trump's tariff plans have jolted financial markets and stoked fears of a global recession, making it less clear whether the BOJ can keep raising rates.
Although Washington announced a 90-day postponement on plans for sweeping tariffs on goods imported into the U.S., it has maintained 25% duties on aluminium, steel and automobiles and a blanket 10% levy on imported goods.
