Japan's core consumer prices rose 2.5 percent in November from a year earlier, as hikes broadened in the services sector in a positive development for the Bank of Japan, but energy-related subsidies limited the overall increase, government data showed Friday.
Despite the slowest gain since July 2022, the core consumer price index, excluding volatile fresh food items, remained above the BOJ's 2 percent target for the 20th straight month, adding to pressure on the central bank as it watches for demand-led, rather than cost-push, inflation.
The key gauge of inflation was up 2.9 percent in October.
Stripping away energy and fresh food, the core-core CPI rose 3.8 percent, underscoring persistent inflationary pressures, according to the Ministry of Internal Affairs and Communications.
With higher import costs and a weak yen having accelerated Japan's inflation, spillovers from goods to service prices are viewed as key by economists.
The latest data point to budding signs that the major driver of inflation is gradually shifting to services as more companies go ahead with price hikes to offer better wages amid a tight labor market.
Service prices rose 2.3 percent, marking the sharpest gain in three decades when excluding the effects of past consumption tax hikes.
"The cost-push elements are becoming less and less," said Toru Suehiro, chief economist at Daiwa Securities.
"Goods inflation will likely slow rapidly given the yen's recent strength, while service prices are expected to remain elevated," he said, expecting overall inflation to moderate.
Among notable gainers, accommodation fees surged 62.9 percent, marking the fastest increase since comparable data became available in 1971.
The rise reflected a recovery in tourism, partly driven by foreign visitors, and came a year after accommodation fees tumbled on the government's discount program aimed at boosting the COVID-hit domestic tourism sector.
Energy prices, meanwhile, dropped 10.1 percent. Without government subsidies to reduce fuel costs, the core CPI would have risen around 3 percent, the ministry said.
The subsidies will continue until next spring as Prime Minister Fumio Kishida seeks to support struggling households while urging companies to raise pay for workers to ride out the cost-of-living crisis.
While headline inflation has consistently remained above 2 percent, the BOJ has underscored the need for more time and data to make sure a virtuous cycle of wage and price hikes is in place.
BOJ Governor Kazuo Ueda said earlier this week that the likelihood of the central bank's inflation target being achieved stably is gradually increasing. But he noted that small and medium-sized firms are finding it difficult to raise prices to reflect higher fixed costs.
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