In July, Japan's headline inflation rate rose to 1.9%, marking the highest level for the year, primarily due to increasing energy costs amid the ongoing conflict in Iran. Core inflation, which excludes fresh food prices but includes energy, aligned with expectations at 1.8%.
Notably, energy prices increased for the first time since November 2025, despite government subsidies aimed at mitigating these costs. This rise in energy prices contributed significantly to wholesale inflation, which stood at 7.2% for July, with electricity charges being the largest factor. Additionally, fresh food prices surged by 7%, up from a 3.9% increase in June.
Analysts have indicated that the relatively low consumer inflation can be attributed to subsidies from Prime Minister Sanae Takaichi's administration, designed to protect consumers from escalating energy prices. The 'core-core' inflation rate, which excludes both fresh food and energy, was reported at 1.9%.
The Bank of Japan has cautioned that core inflation is expected to exceed 2% in the latter half of the 2026 fiscal year, driven by wage increases, rising crude oil prices, and the depreciation of the yen. However, the Bank anticipates that inflation may decrease towards 2% as oil prices stabilize