- POSTED: 27 Sep 2013 08:30
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Japan's consumer prices rose at their fastest pace in nearly five years in August, boosted by higher energy prices, government data showed Friday.
TOKYO: Prices in Japan rose last month at their fastest pace in nearly five years, data showed Friday, the latest sign that efforts to conquer years of growth-sapping deflation were taking hold.
The consumer price index, which measures a basket of everyday goods, but excludes the volatile cost of fresh food, was up 0.8 per cent from a year earlier, the biggest monthly rise since November 2008 when they logged a 1.0 per cent rise, according to the internal affairs ministry.
It was also the third monthly rise in a row, good news for Prime Minister Shinzo Abe, who has pledged to drag Japan out of its 15-year economic funk, lifting prices and wages to get the economy moving again.
However, the upbeat tone of Friday's data was tempered by the fact that the increase was largely driven by higher fuel bills rather than widespread price rises.
A sharply weaker yen has pushed up the cost of Japan's energy imports as global energy prices move higher.
While falling prices at home may sound like a good thing for shoppers, they are bad for the economy as a whole because they encourage consumers to put off spending, knowing they will pay less for a product if they wait.
That makes it difficult for companies to invest and discourages them from giving wage rises, which, in turn, reduces consumer spending further.
Broad-based inflation is key to the policy blitz launched by Abe last year, a mix of government spending and reforms meshed with monetary easing from the Bank of Japan, which has sharply weakened the yen, making the country's exporters more competitive abroad.
Early signs suggest the moves are having a positive effect with the world's third-largest economy expanding again in the June quarter as cautious firms hiked their capital spending.
But that has yet to translate into widespread wage increases, which are essential for convincing people to start spending more.
The inflation figures come ahead of the release of other key data next week including factory output and household spending data while the Bank of Japan is set to release its closely watched Tankan business confidence survey.
The central bank, which earlier this month upgraded its assessment of the world's number-three economy, is also set to hold a two-day policy meeting next week.
The BoJ unveiled a massive monetary easing drive in April, which formed a key part of Tokyo's bid to reflate Japan's sagging economic fortunes.
It also set a target of reaching two-percent inflation by 2015, an ambitious goal to reverse falling prices.
However, observers say Japan's premier must do more -- including overhauling a rigid labour sector and protected industries such as farming -- if he wants to make good on his pledge to revive the country's economy.
Some fear that a planned sales tax rise, squarely aimed at chopping Japan's massive national debt, will cut short its fledgling recovery.
Abe is expected to confirm the tax rise next week as he unveils a sweeping new economic plan that is likely to include more stimulus measures and a possible corporate tax rate cut.