Tokyo core inflation accelerates to 2.7% in September

Core inflation in Tokyo accelerated in September at its fastest pace in 10 months, data showed on Friday, highlighting price pressures that strengthen the case for further interest rate increases by the Bank of Japan. The core consumer price index, which excludes fresh food but includes fuel costs, rose 2.7% from a year earlier, up from a 1.8% gain in August and above a median market forecast of 2.4%. It was the first time the measure had exceeded the Bank of Japan's 2% target since January.

The reading, widely treated as a leading indicator of nationwide price trends, will be among the factors the central bank weighs when it publishes fresh quarterly inflation forecasts at its next policy meeting on 29-30 October. An index stripping out both fresh food and fuel, which the Bank of Japan watches as a better gauge of underlying inflation, rose 3.0% in September after a 2.0% gain in August. Service-sector inflation reached 2.3%, accelerating from 1.4% a month earlier, which the data suggests reflects firms passing on rising labour costs from a tight job market.

Households paid more for a broad range of goods and services, including food, transportation and hotel bills, although part of the increase reflected the phasing out of water bill subsidies. Masato Koike, a senior economist at Sompo Institute Plus, said core inflation would continue to accelerate as a trend, citing rising energy costs linked to the conflict in the Middle East and subsequent second-round effects. Koike said he expects the Bank of Japan to raise interest rates in December.

The central bank raised interest rates to a 31-year high last month, with its governor signalling that it has entered a new phase focused on preventing inflation from overshooting its target, a stance that opens the door to further increases.