Tokyo's core consumer price index rose 2.8% year-on-year in November, unchanged from October and beating market forecasts. This development strengthens the case for a Bank of Japan rate hike by year-end. Rising food prices were the primary driver.
Data released by Japan's Internal Affairs Ministry on November 28 showed that Tokyo's core consumer price index, excluding fresh food, rose 2.8% year-on-year in November. This matched October's level and slightly exceeded the median economist forecast of 2.7%. The core-core index, stripping out both fresh food and energy, also increased 2.8%, unchanged from the previous month.
The rise was largely driven by persistent food price gains, with rice up 37.9% to 38.5% year-on-year, coffee beans 63.4% higher, and chocolate 32.5% more expensive. Service prices rose 1.5%, easing slightly from 1.6% in October and milder than the 4.0% gain in goods prices. Faster electricity cost increases offset slower rises in processed foods.
As a leading indicator for national trends, Tokyo's CPI bolsters the Bank of Japan's (BOJ) considerations for policy tightening. The BOJ ended a decade-long stimulus last year and hiked rates to 0.5% in January, viewing Japan as nearing sustainable 2% inflation. It has held steady since to assess U.S. tariff impacts, but persistent inflation has shifted board opinions toward a hike.
Marcel Thieliant, head of Asia-Pacific at Capital Economics, said: “With the labor market still tight and inflation excluding fresh food and energy set to remain above 3% for now, the Bank of Japan will resume its tightening cycle over the next couple of months.” BOJ board member Asahi Noguchi warned on Thursday that renewed yen declines could further inflate food prices, urging against delays in rate hikes.
Separate October data showed factory output unexpectedly up 1.4% month-on-month due to strong auto production. However, manufacturers forecast a 1.2% drop in November and 2% in December, signaling potential intensification from U.S. tariffs. Reflationist advisers to Prime Minister Sanae Takaichi caution against an early hike, citing weak consumption and a third-quarter GDP contraction.