By Ambar Warrick

Investing.com– Consumer price index inflation in Japan’s capital fell slightly less than expected in March, data showed on Friday, as the impact of government subsidies on utility prices was largely offset by sharp increases in the prices of most other goods.

Tokyo Core CPI rose 3.2% in the 12 months to March, data from the Statistics Bureau showed, more than expectations for growth for 3.1%, but below the prior month’s reading of 3.3%. The core reading excludes volatile items such as fresh food.

Including all items, overall Tokyo CPI rose 3.3% in March, down slightly from the 3.4% seen in the prior month. 

The reading, which usually heralds a similar trend in nationwide inflation data released later, indicates that while government subsidies on utilities helped ease some cost pressures, high food and household goods prices kept inflation elevated in Tokyo through March.

Still, March’s reading marks a second straight month that Tokyo inflation has retreated after hitting an over 40-year high of 4.3% in January. The Tokyo Core CPI was also at its lowest level since October. 

The drop in inflation was largely driven by government subsidies on electricity prices, which sank 6% in March. The Japanese government had earlier this year rolled out an additional 2 trillion yen ($1=133.01 yen) to offer subsidies on some utilities and help rein in high inflation.

But this was largely offset by steadily increasing prices for most other goods. Food prices rose 7.6%, while gas prices jumped over 12% in the month.

Friday’s reading, while stronger than expected, still comes in line with a Bank of Japan forecast that inflation will ease in the first half of 2023. This is expected to keep the central bank’s ultra-loose monetary policy unchanged, for the time being.

But inflation is expected to pick up again by late-2023, which could see the BOJ once again consider tightening policy.

The yen sank 0.3% to 133.08 after the reading, given that it still showed some easing in inflation.

Data last week showed that nationwide Japanese inflation eased further from 40-year highs in February. But March’s Tokyo CPI reading indicates that inflation may now be retreating at a slower than expected pace.