Core prices in Japan continue to keep above 2% in May, according to BOJ data

Core inflation is seen at 2.7% in May, after the 2.8% estimate in April. However, the more important core-core inflation metric is seen at 2.1% last month. And that reflects a drop from 2.2% in April. While the former continues to keep rather sticky as it factors in energy prices, the latter suggests that the trend in core categories in Japan is not too jumpy. Since peaking in June last year at 3.6%, it has been a steady descend to 2.1% now. And that similar trend is reflected in the trimmed mean estimate as well, which is now down to 1.5%. As such, this is now going to make things a bit more tricky for the BOJ in navigating policy moving forward. Japan wants to build on the platform of inflation being driven by wage pressures for the most part. However, the Middle East conflict is now giving rise to cost-push inflation instead. And that is not the type of inflation dynamic that policymakers want to be working with. And in needing to respond to that should inflation pressures become more widespread, the inherent risk is that they may be tightening policy for the wrong reasons and crush the economy and wage-price dynamic that they have been building since the Covid pandemic. Trouble, trouble.