Investing.com-- Japanese consumer price index inflation grew more than expected in January amid robust consumer spending, pointing to a hawkish outlook for the Bank of Japan in its plans for more interest rate hikes. 

Headline national CPI surged to a two-year high of 4.0% year-on-year in January from 3.6% in the prior month, government data showed on Friday.

Core CPI, which excludes volatile fresh food items, grew 3.2% y-o-y, more than expectations of 3.1%. The print was at a 1-½ year high.

A core CPI reading that excludes both fresh food and energy costs rose slightly to 2.5% y-o-y from 2.4% in the prior month. The reading is a key gauge of underlying inflation used by the BOJ, and was well above the central bank’s 2% annual target.

January’s inflation print was driven chiefly by strong consumer spending through the year-end holidays, while food prices also rose sharply for a second consecutive month.

Friday’s reading ties further into the BOJ’s expectations of higher inflation, which is expected to elicit more rate hikes from the central bank this year. The BOJ had hiked rates by 25 basis points in January, and signaled more hikes were likely.

BOJ board member Naoki Tamura recently signaled that the bank’s benchmark rate could rise by another 50 bps to 1% in 2025. 

A rebound in Japanese inflation was driven chiefly by strong wage growth through 2024- a trend that is expected to be repeated in 2025’s springtime wage negotiations. 

The anti-inflationary effects of government subsidies are also expected to peter out in the coming months, keeping inflation underpinned.

Friday’s data comes just days after stronger-than-expected gross domestic product data for the fourth quarter, which showed continued resilience in the Japanese economy.

Strength in the economy and sticky inflation gives the BOJ more headroom to keep raising interest rates.