Japan's core consumer prices held their annual pace in May while the headline rate ticked higher, according to data from the Ministry of Internal Affairs and Communications on Friday.
The figures arrived three days after the Bank of Japan raised interest rates to their highest level in three decades on Tuesday with a 7-1 vote, as policymakers grew more concerned about inflation risks stemming from higher energy costs.
The core consumer price index, which strips out volatile fresh food prices and is the BOJ's preferred inflation gauge, rose 1.4% year over year in May, unchanged from April's reading.
The latest print was in line with the consensus forecast tracked by Investing.com.
Month over month, core CPI climbed 0.4% on a seasonally adjusted basis, rebounding from zero change between March and April.
The "core-core" inflation, which excludes both fresh food and energy prices, eased slightly to 1.8% from 1.9% in April, falling below the Trading Economics forecast of 1.9%.
Japan's nationwide headline CPI climbed 1.5% year over year in May, faster than the 1.4% increase in April, but missing the Trading Economics forecast of 1.6%.
On a seasonally adjusted month-over-month basis, headline inflation accelerated to 0.4% from 0.1% the previous month.
Fresh food was the primary driver behind the uptick in headline inflation, with the fresh food index rising 3.5% year over year in May, versus the 0.3% annual growth in April. The category contributed 0.14 percentage points to the headline print.
The CPI data was published just days after the BOJ concluded its June 15-16 policy meeting, where the policy board voted to increase the short-term policy rate by 25 basis points to 1.0% from 0.75%.
At the latest meeting, the board warned that the pass-through of higher crude oil prices has been progressing relatively quickly in business-to-business transactions and could spread to consumer prices across a wide range of goods.
"There is a risk of underlying CPI inflation deviating upward to a level above the price stability target of 2 percent," the BOJ said.
The BOJ published the minutes of its earlier April meeting on Friday, where members noted that if crude oil prices remained elevated, "risks to prices were skewed to the upside."
One member noted in April that while the price stability target of 2% "had been more or less achieved," Japan's real policy interest rate was "at the lowest level globally," suggesting the need for the BOJ to continue adjusting the negative real interest rate ahead of an anticipated second-round effects of inflation stemming from overseas developments.
At the press conference for the latest rate hike earlier this week, BOJ Deputy Governor Uchida struck a hawkish tone, according to analysts.
"Listening to Uchida's remarks, the timing of the next rate hike will likely depend on how quickly energy supply disruptions are resolved," said ING Think Senior Economist Min Joo Kang.
"The BoJ is likely to focus less on headline inflation and more on its new price measure. It features core inflation, while stripping out distortions from government measures. As such, it should better capture underlying inflation."
ING expects the BOJ's preferred inflation measure to stay above 2%, citing firm wage growth, second-round effects from oil price hikes and a weak yen.
