TOKYO: Japanese inflation hit a five-year high last month, although yesterday’s data showed the rise was driven by soaring energy costs, indicating the government’s plan to boost consumer demand was still to gain traction.
The consumer price index, which measures a basket of everyday goods but excludes the volatile cost of fresh food, was up 0.8 percent from a year earlier, according to the internal affairs ministry.
That was the biggest monthly rise since November 2008, when it logged a 1.0 percent increase, and the third consecutive monthly jump.
The new figures are likely to be embraced by Abe’s government. The conservative leader has pledged to drag Japan out of its 15-year deflationary funk with a policy blitz dubbed “Abenomics”, lifting prices and wages to get the economy moving again.
However, the upbeat headline for yesterday’s data was tempered by the fact that prices were being driven up by higher fuel bills, not surging demand for everyday goods like vacuum cleaners and clothes which power the economy as a whole.
Energy imports soared in the wake of the Fukushima atomic disaster in 2011, forcing the shutdown of Japan’s nuclear reactors.
Some firms are raising prices — including drinks maker Yakult, which is ushering in its first hikes in over 20 years — but that is largely due to a weak yen driving up material costs.
“If gains in prices were driven by increased domestic demand, someone paying higher prices means someone else is earning more locally, creating a virtuous cycle in the economy, but these activities aren’t widely seen,” Tetsuhide Mikamo, director at Marubeni Research Institute, told Dow Jones Newswires. “Abenomics is only half done.”
Falling prices may sound like a good thing for shoppers, but they can be bad for growth 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.
AFP
