People looks at the fruits at a shop at the Tsukiji Outer Market in Tokyo on August 22, 2025. (Photo by Philip FONG / AFP) (Photo by PHILIP FONG/AFP via Getty Images)
Philip Fong | Afp | Getty Images
Japan’s headline inflation rate hit 1.9% in July, the highest level this year, as energy costs increase amid the Iran war.
Core inflation — which strips out prices of fresh food but includes energy — was in line with expectations, coming in at 1.8%.
Energy prices rose for the first time since November 2025 despite government subsidies, due to high oil costs from the conflict in the Middle East. That showed up in wholesale inflation, which came in at 7.2% for July, with electricity charges being the largest contributor.
Fresh food prices also saw a sharp spike, increasing 7% compared to a 3.9% rise in June.
Analysts have previously told CNBC that the relatively low consumer inflation is due to subsidies handed out by Prime Minister Sanae Takaichi’s administration as it attempts to shield consumers from higher energy prices.
The so called “core-core” inflation rate — which strips out prices of both fresh food and energy, came in at 1.9%.
The Bank of Japan warned in its outlook report last month that core inflation was likely to accelerate to a level “clearly above” 2% from the second half of its 2026 fiscal year, which runs from September to March.
It cited wage increases being passed along into selling prices, the rise in crude oil prices and the recent depreciation of the yen. Inflation should then come down toward 2% as oil declines, it said.
The rise in headline inflation to 1.9% “strengthens our conviction that the BOJ’s next move is likely to be a rate hike in September,” according to Krishna Bhimavarapu, APAC economist at State Street Investment Management.
While domestic demand remains resilient, he noted, food prices warrant closer attention, given their larger weight in Japan’s CPI basket, adding that there could also be El Nino-related disruptions to global agricultural supply.
Food prices, especially for rice, were a hot topic in Japan last year, even costing the country’s then-farm minister Taku Eto his job after he made comments over receiving free rice from supporters.
