Japan's May core inflation stays below BOJ target, fuel-induced rise eyed

* May core CPI rises 1.4% yr/yr, matches forecast

* Index excluding fresh food, fuel rises 1.8% yr/yr in May

* Analysts expect inflation to accelerate in coming months

By Leika Kihara

TOKYO, June 19 (Reuters) - Japan's annual core inflation stayed below the central bank's 2% target for a fourth straight month in May, data showed on Friday, as fuel subsidies offset rising raw material costs from the Middle East conflict.

Analysts expect consumer inflation to re-accelerate in coming months and keep the Bank of Japan on course for further interest rate hikes, as cost pressures that have already led to a spike in producer prices broaden.

The core consumer price index (CPI), which excludes volatile fresh food prices, rose 1.4% in May from a year earlier, government data showed, matching a median market forecast and steady from the year-on-year increase in April.

An index that strips away both volatile fresh food and fuel, closely watched by the Bank of Japan as a better gauge of underlying inflation, rose 1.8% in May from a year earlier, the data showed. It was the slowest annual pace since September 2022.

The BOJ raised interest rates to a 31-year high on Tuesday in a landmark step in its policy normalisation, signalling readiness to tighten further as it focuses on taming price pressures from the Iran-war-induced energy shock.

While the peace deal between the U.S. and Iran eased market fears over global inflationary pressures, wholesale inflation spiked to a three-year high of 6.3% in May in a sign companies were already passing on higher costs from the energy shock.

The Middle East conflict has complicated the BOJ's decision on the timing and pace of rate hikes, as higher energy costs fuel inflation while simultaneously squeezing an economy heavily dependent on oil imports. (Reporting by Leika Kihara; Editing by Sam Holmes)