Japan Inflation Slows to 3.2% in May; Factory Activity Falls Back into Contraction in June

Japan’s headline inflation came in at a slower rate of 3.2% in May, but still above the central bank’s target, office data showed on Friday.

The figure eased from the 3.4% recorded in April, but slightly above the 3.1% expected by economists polled by Reuters.

The consumer price index has now been higher above the Bank of Japan’s price target of 2% for 14 consecutive months.

According to analysts, the increase was driven by consistent price increases for food and everyday needs, suggesting a burden on household consumption from the rising cost of living. While other countries, like the United States, have suffered significant rises in prices due to causes like the crisis in Ukraine, the world’s third-largest economy has only seen moderate inflation.

Still, the data showed broad pricing pressure, which will keep the Bank of Japan under pressure to scale back its stimulus.

Meanwhile, surveys released on Friday revealed that manufacturing activity in Japan retreated into contraction in June and service sector growth slowed for the first time in seven months. This followed a decline in company confidence and demand.

The au Jibun Bank flash Japan manufacturing purchasing managers’ index (PMI) fell to 49.8 in June from 50.6 in May (after seasonal adjustment), marking a return to contractionary conditions.

The service sector continued its expansionary trend, albeit at a slower rate. The PMI for June was 54.2, down from May’s 55.9.

However, input price growth has slowed to a 22-month low, easing cost pressures.