Japanese consumer prices saw their first annual rise in five years last year, but the jump was largely driven by soaring energy import bills, dampening hopes that Tokyo is winning its war on stubborn deflation.
Yesterday’s inflation data, despite accompanying upbeat figures on jobs, household spending and factory output, show Japanese Prime Minister Shinzo Abe and the central bank still have a major job on their hands as they try to drag the world’s No. 3 economy back to life.
The consumer price index, which measures a basket of everyday goods, but excludes volatile fresh food costs, rose 0.4 percent last year, the first annual increase since a 1.5 percent rise in 2008. In December alone, prices were up 1.3 percent year-on-year.
However, when food and energy prices were taken out of the equation, prices actually slipped 0.2 percent last year.
Japanese households have seen their electricity bills surge since the 2011 Fukushima atomic disaster led to the closure of the country’s nuclear power stations.
The move has led Japan to rely on pricey imported fossil fuels, which have been made more expensive with a plunge in the yen over the past year as Abe and the central bank embarked on an unprecedented spending and monetary easing drive.
A key plank of Tokyo’s policy blitz is the Bank of Japan’s 2 percent inflation target, which is deemed crucial to turn around an economy beset by weak consumer spending and tepid business investment.
Japan’s improving prospects are closer to a “dim light rather than shining bright,” Norinchukin Research Institute economist Takeshi Minami said.
“Last-minute demand before the sales tax hike [due in April] could have been much stronger, but the figures show slack growth,” he said, adding data showing a fall in the jobless rate were mostly tied to fewer people in the workforce, not a surge in new jobs.
Separate numbers released yesterday showed unemployment hit a six-year low of 3.7 percent in December, while factory output rose 1.1 percent month-on-month in December, reversing a 0.1 percent fall in November.
However, the Bank of Japan’s bid for sustained inflation by the middle of next year looks increasingly unlikely in a country where citizens have become used to falling prices for more than a decade, a growing number of analysts say.
“It’s not easy to change people’s mindset after 15 years of deflation,” Meiji Yasuda Life Insurance chief economist Yuichi Kodama told Dow Jones Newswires.