Japan’s new inflation gauge justifies a June rate hike

The Bank of Japan is adapting to a world where its usual inflation metrics aren’t capturing the wave of expensive, imported energy hitting the economy.

The central bank introduced a new gauge that not only strips out volatile fresh food prices, but also removes so-called “institutional factors” – most notably, household support measures relevant to the current geopolitical situation: gasoline subsidies and utility rebates.

The new metric will help the central bank communicate its interest-rate projections at a time when conventional inflation numbers were not bolstering the case to tighten policy. (“Traditional” core inflation is below the 2% target due to energy subsidies; but under the new metric, underlying core inflation is running at a 2.5% pace.)