By Leika Kihara and Satoshi Sugiyama
TOKYO (Reuters) – Core consumer prices in Japan’s capital rose 1.9% in May from a year earlier, data showed on Friday, accelerating from the previous month and keeping alive market expectations the central bank will raise interest rates this year.
But the uptick was driven mostly by rising electricity bills, which could hurt already weak consumption and heighten uncertainty about the outlook for Japan’s economy.
The rise in the Tokyo core consumer price index (CPI), a leading indicator of nationwide figures, matched a median market forecast and followed a 1.6% increase in April.
A separate index that excludes the effect of both fresh food and fuel costs, closely watched by the BOJ as a broader price trend indicator, rose 1.7% in May from a year earlier after a 1.8% gain in the previous month, the data showed.
The BOJ ended eight years of negative interest rates and other remnants of its radical monetary stimulus in March as it judged that sustained achievement of its 2% inflation target has come into sight.
BOJ Governor Kazuo Ueda has said the central bank will raise interest rates from current near-zero levels if underlying inflation, which takes into account CPI and broader price gauges, accelerates toward 2% as it currently projects.
Japan’s economy shrank an annualised 2.0% in the first quarter as companies and households reduced spending, casting doubt on the central bank’s view of a moderate recovery.
While analysts expect growth to rebound in the current quarter, a weak yen is weighing on household sentiment by pushing up the cost of imports for fuel and food.