A deflationary spiral that has eroded corporate pricing power in the world’s second-largest economy is one of the biggest reasons to doubt the sustainability of the current rally.

Another serious blow to the economy or a steep downgrade in the inflation outlook, though unlikely, could still convince officials to lower rates once more this year, they said.

All three indexes were bolstered after Mr Powell flagged the risks of higher inflation and a weakening jobs market at a central bankers conference in Jackson Hole, Wyoming.

The BOJ in 2024 exited a decade-long, massive stimulus and raised short-term interest rates to 0.5 per cent in January on the view Japan was close to durably hitting its 2 per cent inflation target.

“It is also possible, however, that the upward pressure on prices from tariffs could spur a more lasting inflation dynamic, and that is a risk to be assessed and managed.”

“Higher interest rates have eroded the real-world purchasing power of the typical American household,” said Danielle Hale, Realtor.com’s chief economist.

The British central bank expects inflation to peak at 4 per cent in September, double its 2 per cent target, on the back of higher food costs but to drop back after that.

Chair Jerome Powell said that the inflationary impact from tariffs could well be temporary, but the central bank needed to guard against a more persistent effect.