Rice price in Japan rockets over 2x in May, food inflation at 5-decade high- Will BoJ hike rates?
The price of rice in Japan increased by over two times in May, spiking as much as 101.7 per cent year-on-year and marking its highest increase in more than 50 years. The sharp rise follows an over 98 per cent increase in April and an over 92 per cent rise year-over-year in the previous month.
The spike in rice prices has pushed food inflation higher, with the country's core inflation rising 3.7 per cent in May, its highest level since January 2023.
The price of the staple food has been on the radar recently, with the centre taking steps such as offering emergency stockpiles for curbing steep price.
The country's core inflation in May was above April's print of 3.5 per cent.
Headline inflation stood at 3.5 per cent, lower in comparison to April's 3.6 per cent, marking the 38th straight month when inflation came in much higher than the Bank of Japan's 2 per cent target.
Marcella Chow, Global Market Strategist at JP Morgan Asset Management, pointed out that the commodity rice accounts for nearly 50 per cent of the country's core inflation, and future inflationary trends are materially dependent on food prices, especially rice.
Earlier this week, the country's central bank held its key policy rate at 0.5 per cent, stating that the decision has been taken unanimously in the wake of global trade uncertainty as well as sluggish exports and industrial production.
Also, it pointed out that country's economy has recovered moderately since its earlier monetary policy meeting on April 30.
Even though the central bank may resort to a long pause before increasing interest rates again, there is left enough scope for policy rate hike this year as caution prevails over lingering price pressure that could take inflation to very high levels.
Furthermore, the BOJ also offered a number of arguments in favour of rate hikes, centered on broadening inflation, moderate economic recovery and rising wages among others. So, maintaining a cautious stance, the BOJ sees room for further hike in rates if inflationary pressure intensifies.
