Japan's core consumer price index, which strips out one-off factors, rose in September at the fastest annual pace in three years, data showed on Tuesday, a sign of broadening price pressures that cement the case for further interest rate hikes.
The data comes ahead of the Bank of Japan's two-day policy meeting that ends on Friday, when the central bank is set to keep interest rates steady at 1.25% but signal its readiness to keep raising borrowing costs on mounting risks of inflation.
The index, which excludes "institutional factors" such as education and energy-related subsidies, jumped 3.2% in September from a year earlier, BOJ data showed, accelerating from a rise of 2.6% in August.
The index rise is the biggest year-on-year since October 2023.
The index is compiled by the BOJ to better gauge underlying inflation, or price moves driven by domestic demand that strips out the effect of government subsidies and other one-off steps.
It is different from the government's core consumer price index, which excludes volatile fresh food costs but does not strip out the impact of subsides and other government steps.
Separate data from the BOJ earlier on Tuesday showed a key gauge of service-sector inflation rose 3.7% in September from a year earlier, suggesting that companies are passing on rising labour costs to service-related prices.
"The data shows companies are passing on prices at the business-to-business level reflecting the strong outcome of this year's wage negotiations," said Kenichiro Ahara, an economist at Dai-ichi Life Research Institute.
The annual rise in the services producer price index, which tracks the prices companies charge each other for services, followed a revised 3.5% gain in August.
A jump of 97.7% in ocean freight transport costs was among key drivers of the increase, as the weak yen and Middle East conflict boosted the cost of importing fuel, the data showed.
Still, prices of labour-incentive sectors continued to rise steadily in a sign of broadening price pressures, analysts said.
The BOJ has said it focuses on underlying inflation in deciding the pace and timing of future interest rate hikes.
(Reporting by Leika Kihara and Takahiko Wada; Editing by Muralikumar Anantharaman and Clarence Fernandez)
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