Japan’s efforts to combat deflation got a boost last month with a key inflation indicator rising at its fastest pace in 15 years, new data showed yesterday, as Tokyo battles to reverse years of falling prices.
Stripping out volatile food and energy prices, which have largely driven recent increases, prices inched up 0.3 percent last month, the nation’s best result since 1998.
The broader consumer price index, which measures a basket of everyday goods, but excludes the cost of fresh food, rose 0.9 percent last month from a year earlier, the fastest pace in five years.
Japanese Prime Minister Shinzo Abe’s government has put conquering deflation and stoking growth in the world’s third-largest economy at the top of its agenda with a policy blitz dubbed “Abenomics.”
The upbeat headline for yesterday’s inflation data was tempered by the fact that prices were still largely driven up by higher fuel bills, not surging demand for everyday goods like vacuum cleaners and clothes, which power the economy as a whole.
Electricity bills jumped a hefty 8.2 percent, the data showed, as Japan’s energy costs soar in the wake of the Fukushima Dai-ichi nuclear power plant disaster, which forced the shutdown of the nation’s nuclear reactors.
Since the accident, Japan has been importing fossil fuels to plug the energy gap, a pricey option that has become even more expensive as the yen sharply weakened in the wake of the Bank of Japan’s (BOJ) unprecedented monetary easing drive.
Yesterday’s data showed the BOJ’s ambitious 2 percent inflation target — to be reached in just two years — was still a long way off.
Analysts have been warning that Tokyo’s bold pro-growth program — a mix of big government spending and central bank monetary easing — is not enough on its own without promised economic reforms.
Dai-ichi Life Research Institute economist Koichi Fujishiro credited Abe’s plan for playing a “big role” in the upbeat inflation figures.
“But it’s not only because of Abenomics — it’s also due to the fact that Japan’s economy is recovering smoothly,” he said. “Inflation is being pushed by higher costs. What’s different from the past is that companies have started to pass on higher costs by pushing up the price they charge for products. Firms are becoming more confident.”
While falling prices may sound like a good thing for shoppers, it can be bad for growth because they encourage consumers to put off spending, knowing they will pay less for a product if they wait.
Getting Japan’s notoriously thrifty households to spend more is a key part of Abe’s drive, as are yet-to-be-seen widespread wage rises.
In other data published yesterday, spending among Japanese households rose 0.9 percent last month, ahead of a sales tax hike next year, while the unemployment rate held steady at 4 percent.