The acceleration in headline inflation and strength in underlying inflation in January should add to the Bank of Japan’s confidence that it can continue its tightening cycle over the coming quarters. In January, headline inflation rose further from 3.6% to 4.0%. Part of this strength was due to volatile fresh food inflation which made a sizable 0.9%-pts contribution as it accelerated from 17.2% to 21.9%. Energy inflation also rose a touch further to 10.8% after the ending of public subsidies for electricity and gas last quarter, which allowed it to contribute a robust 0.7%-pts. However, it should start falling from this month onward as the government starts reinstating the subsidies.
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