Japan's Inflation Rate Falls Below Bank of Japan Target for the First Time Since 2022

Japan’s core inflation indicator slowed more than expected due to utility subsidies suppressing energy costs, reaching its lowest level in nearly four years; however, recent sharp rises in oil prices may drive inflation rebound in the coming months. Data released by Japan’s Ministry of Internal Affairs and Communications on Tuesday showed that the consumer price index (CPI), excluding fresh food, rose 1.6% year-on-year in February, the smallest increase since March 2022. The previous figure was a 2% increase, and this data was below economists’ median forecast of 1.7%. Meanwhile, the index excluding fresh food, energy, and other volatile items, which reflects core inflation resilience, rose 2.5% year-on-year, well above Japan’s 2% inflation target. The overall inflation rate, including all items, fell to 1.3%, also the lowest since March 2022. Despite the slowdown in inflation, Japanese consumers are facing rising gasoline prices, which could prolong the cost-of-living pressures that have lasted over four years. Japan’s heavy reliance on imported energy makes it one of the economies most affected by escalating tensions in the Middle East.