*

April core CPI rises 3.5% yr/yr vs f'cast +3.4%

*

Index excluding fresh food, fuel up 3.0% yr/yr in April

*

Data underscores sticky food inflation

(Adds analyst quote in paragraphs 5-6, Reuters poll in

paragraph 7, detail in paragraphs 9-10)

By Leika Kihara

TOKYO, May 23 (Reuters) - Japan's core inflation

accelerated at its fastest annual pace in more than two years in

April, data showed on Friday, raising the odds of another

interest rate hike by year-end.

The data underscores the Bank of Japan's predicament of

balancing price pressures from persistent food inflation against

growth headwinds from U.S. President Donald Trump's tariffs.

The core consumer price index (CPI), which excludes fresh

food but includes oil prices, rose 3.5% in April from a year

earlier, exceeding market forecasts for a 3.4% gain and

accelerating from a 3.2% increase in March.

It was also the fastest annual pace of growth for the index

since the 4.2% rise in January 2023, holding above the central

bank's 2% target for more than three years.

"Underlying inflation remained strong in April despite the

slashing of public high school fees," said Marcel Thieliant,

head of Asia-Pacific at Capital Economics.

"Our own view is that the persistent strength in inflation

will convince the (BOJ) to hike interest rates yet again in

October," contrary to the dominant market view that U.S. trade

tensions will force it to hold fire this year, Thieliant said.

A

Reuters poll

of economists showed that the BOJ will hold rates steady

through September, with a small majority forecasting a 25-basis

point rate hike by year-end.

Another index stripping away both fuel and fresh food, which

is scrutinised by the BOJ as a better gauge of demand-driven

price pressure, rose 3.0% in April from a year earlier, the data

showed. It accelerated from a 2.9% gain in March.

Food inflation accelerated to 7.0% in April from 6.2% in

March in a sign many companies hiked prices at the April start

of Japan's new fiscal year. The price of rice spiked 98.6% last

month from a year earlier, while that of chocolate jumped 31%.

Service-sector inflation was more moderate at 1.3% in April,

compared with 1.4% in March, suggesting companies were slow in

passing on rising labour costs, the data showed.

The BOJ ended a decade-long, massive stimulus programme last

year and in January raised short-term interest rates to 0.5% on

the view Japan was on the cusp of durably meeting its 2%

inflation target.

While the central bank has signalled readiness to raise

rates further, the economic repercussions from Trump's tariffs

have complicated decisions around the timing of the next rate

increase.