By Daniel Leussink

TOKYO, Reuters – Japan’s core consumer price rose in March at the fastest rate in over two years. This raises concerns that rising energy and food prices could increase households’ buying power.

According to government data, the core consumer price index, which includes volatile fresh foods prices, but also fuel costs and other energy costs, rose 0.8% from last year, according to Friday’s report.

This pace suggests that core CPI may be close to the Bank of Japan (BOJ’s) 2% target for April. The impact of mobile fee reductions in April last year is fading from annual comparisons.

According to a government official, mobile phone fees dragged overall CPI down by 1.42 percentage points in March. This was despite the fact that CPI had fallen in February by an average of 1.42 percentage points.

According to the official, “About one percentage point will probably disappear in the April outcome, but it’s unlikely it will drop completely,” he said. However, he couldn’t say how likely it was that core CPI year-over-year might exceed 2% April.

The BOJ will review price data as part of its next rate review. This will take place on Thursday. At that time, it will likely raise its inflation forecasts for the fiscal year to close to 2.2%.

Since September, core consumer price inflation has seen a month-on-month increase. This was the largest year-on–year increase since January 2020.

Shinkin Central Bank Research’s senior economist Takumi Takumi Tsunoda stated that “real incomes will fall when prices rise so it’s likely the economy will suffer.”

Consumer sentiment doesn’t improve when fuel, food and other necessities are more expensive. You will be more inclined to cut back on your spending.

The sharpest increase in energy prices in more than 40 years was recorded in March, when they rose 20.8% compared with the previous month. The largest single-month increase in food prices since December 2015 was 2.0%.

However, overall, Japan’s price rises have been modest in comparison to the much faster gains made in America and other advanced countries. This is because Japan’s slow wage growth discourages companies from increasing prices too much.

The BOJ continues to support its massive monetary stimulus. It seeks to stabilize inflation at its target of 2% on the back strong wage growth. But, it is concerned that an eroding yen could cause higher import prices of food and fuel.