Japan yesterday hailed a key inflation indicator touching a five-year high as proof its “Abenomics” growth blitz was winning the war on falling prices, but analysts warned consumer spending had yet to gain traction.
Stripping out volatile fresh food and energy prices, which have largely driven recent increases, prices did not fall last month — deflation-plagued Japan’s best result since December 2008.
The broader consumer price index (CPI), which measures a basket of everyday goods but excludes the cost of fresh food, rose 0.7 percent from a year earlier, the fourth consecutive monthly rise.
Japanese Minister in charge of Economic Revitalization Akira Amari applauded the “good moves toward getting out of deflation,” and likened Tokyo’s battle to nearing the summit of the country’s iconic Mt Fuji.
“Oxygen is getting thin, but we’d like to hold out,” he added.
Japanese Prime Minister Shinzo Abe’s efforts have started to bear fruit with the economy growing at an annualized rate of 3.8 percent in the first half of the year, far outpacing other G7 economies, while business confidence hit a five-year high.
However, the upbeat headline for yesterday’s data was tempered by the fact that prices were largely driven up by higher fuel bills, not surging demand for everyday goods such as vacuum cleaners and clothes, which power the economy as a whole.
“Inflation data out of Japan highlighted how nervous consumers are,” said Chris Tedder, research analyst at Forex.com in Sydney.
It “puts the spotlight on a bigger problem in Japan: the lack of domestic demand... We think the problem is that household income isn’t increasing enough to justify consumers spending more,” he added.
Yesterday’s data showed the Bank of Japan’s (BOJ) ambitious inflation target — to be reached in just two years — was still a long way off as consumers keep a tight rein on their spending.
“Things are heading in the right direction, just a bit slower than the BOJ would like,” Tedder said.
London-based Capital Economics also issued a downbeat assessment, saying “further increases in inflation should be more muted.”