People looking at fruit at a shop at Tsukiji Outer Market, Tokyo, 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 reached 1.9% in July, the highest level this year, as energy costs rose amid the Iran war.
Core inflation, which includes energy and excludes fresh food prices, was 1.8%, in line with expectations.
Despite government subsidies, energy prices rose for the first time since November 2025 due to soaring oil prices due to the Middle East conflict. This was reflected in the wholesale inflation rate in July, which stood at 7.2%, with electricity prices being the biggest factor.
Prices for fresh produce also soared, rising 7% compared to June’s 3.9% rise.
Analysts previously told CNBC that the relatively low consumer inflation was due to subsidies handed out by Prime Minister Sanae Takaichi’s government to protect consumers from soaring energy prices.
So-called “core-core” inflation, which excludes fresh food and energy prices, was 1.9%.
The Bank of Japan warned in its outlook report last month that core inflation is likely to accelerate to a level “clearly above” 2% from the second half of the 2026 fiscal year (September to March).
The reasons for this include rising wages being passed on to sales prices, rising crude oil prices, and the recent depreciation of the yen. After that, he said he expects inflation to fall toward 2% as oil prices fall.
Krishna Bhimavarapu, Asia-Pacific economist at State Street Investment Management, said the rise in headline inflation to 1.9% “reinforces our belief that the BOJ’s next move is likely to be a rate hike in September.”
He pointed out that although domestic demand remains resilient, it is necessary to pay close attention to food prices given their weight in Japan’s CPI basket, adding that there is also the possibility of disruptions to global agricultural supplies related to the El Niño phenomenon.
Food prices, especially the price of rice, became a hot topic in Japan last year, even costing then-Minister of Agriculture, Forestry and Fisheries Taku Eto his job over comments about receiving free rice from supporters.
