The cost of living in Tokyo increased slightly faster than the previous month, signaling potential gradual interest rate hikes by the Bank of Japan. Consumer prices, excluding fresh food, went up by 2.4% in March compared to a year ago, with processed food inflation driving the increase, according to data from the ministry of internal affairs. This exceeded the 2.2% forecast by economists and was higher than estimates surveyed by Bloomberg.

Overall inflation also rose to 2.9% from the previous month's 2.8%. These figures are influencing BOJ Governor Kazuo Ueda's decision on when to implement further rate hikes. Despite concerns over the impact of US President Trump's tariffs on the global economy, Japan's internal data is showing progress towards the BOJ's inflation target, fueling speculation about the timing of the next rate increase.

Although most economists predict that the central bank will wait until June or July to raise interest rates in their base case scenarios, there is a possibility of an earlier move at the next board meeting concluding on May 1. The latest data highlights the ongoing inflationary pressures, particularly in non-fresh food items which saw a 5.6% increase, including a significant 92.4% rise in rice prices.

The sharp increase in rice prices has triggered public concern, leading the government to release emergency rice stockpiles this month for the first time. Businesses are passing on their rising costs to consumers due to a weakening yen and higher material and labor expenses. Major food companies elevated prices of 2,343 products in March, which is three times more compared to a year ago, according to Teikoku Databank.