By Takahiko Wada and Leika Kihara

TOKYO, Reuters – Japan’s capital saw its consumer inflation accelerate in February at its fastest pace for more than two decades. This suggests that rising fuel and food prices will have a negative impact on the consumption of the country and hinder the fragile economic recovery.

Analysts believe that the Ukraine crisis will accelerate inflation over coming months, causing a surge in global commodity and energy prices. That could cause woes in Japan’s economy, which heavily depends on imported raw material.

Yoshiki Shinke chief economist of Dai-ichi Life Research Institute stated, “Import prices were already increasing, so any increase in raw material costs from the Ukraine crisis will deal a tremendous blow to Japan’s consumer and corporate profits.”

Tokyo’s consumer price index, (CPI) was up 1.0% from last year. It is considered to be a major indicator of trends nationwide. Friday’s government data revealed that the pace had been at its fastest since December 2019.

Tokyo core CPI, which does not include volatile fresh food, but contains energy costs, increased 0.5% by February from one year prior, moving from 0.2% growth in January. This compares to a market median forecast of 0.4% growth.

The main driver for the increase in CPI was a 24.2% rise in energy prices, which underlines the financial hardship that higher fuel costs have on retailers and households.

According to data, prices also increased for many foods and services. But, the temporary impact of cuts in cellphone charges, which slowed the growth, was evident.

Shinke explained that if oil prices keep rising, Japan’s core CPI might reach 2% in April. It may not slow down thereafter.

After Russia attacked Ukraine, the international benchmark for crude oil prices soared to $105 per barrel.

Fumio Kishida the Prime Minister stated the government was prepared to further reduce fuel costs. This is in addition to existing subsidies that are available to offset the impact on households.

However, it is not clear how these moves will support consumption given rising raw material costs that have already led to increased prices of various groceries products such as snacks and soy sauce.

Japan’s economy has rebounded from COVID-19’s initial hits, but there have been some restrictions on the economic activity that were put in place to counter rising Omicron-related cases.

Low wage growth and slow consumption have deterred firms from passing higher costs onto households. This has kept consumer inflation from reaching the central bank’s target of 2%.