TOKYO – Japan’s consumer prices rose in July at their fastest pace for almost five years, data showed Friday, giving cheer to the government’s easy-money policy but putting a strain workers owing to slow wage growth.
The reading, which excludes volatile prices of fresh food, was up 0.7 percent from a year earlier, the biggest rise since a 1.0 percent increase in November 2008 when expensive energy imports temporarily offset domestic deflationary pressure.
It also follows June’s 0.4 percent increase, which marked the first rise in 14 months, according to the internal affairs ministry.
The ministry added that unemployment edged down to 3.8 percent in July – its lowest since October 2008 – from 3.9 percent in June.
Separately the economy and industry ministry said factory output rose 3.2 percent on month in July, reversing a revised fall of 3.1 percent in the previous month.
The latest numbers will provide a lift for Prime Minister Shinzo Abe, who has pledged to reverse 15 years of deflation with active spending, which he says will stoke growth.
The latest factory output numbers are “good if we consider exports, which weren’t that favourable during the month”, said Norinchukin Research Institute chief economist Takeshi Minami.
“It shows the economic recovery remains intact,” he told Dow Jones Newswires.
Mizuho Securities Research and Consulting senior economist Norio Miyagawa said higher prices are “further proof that the Japanese economy is solidly recovering. The next challenge is how soon it will start pushing up wages”.
Household spending in July rose a marginal 0.1 percent on year, with disposable income at wage-earning households up 0.4 percent.
Although there are early positive signs of the effect of Abe’s policies, the higher consumer prices were fuelled by increases in the cost of electricity and gasoline, which could put a strain on workers amid stagnant wage growth.
The price increases in the past two months have largely represented “cost-push” inflation, driven by high global energy prices as well as a weaker yen that has made imports more expensive, Norinchukin’s Minami said.
“It’s a key for Japan whether we can smoothly shift from cost-push to demand-pull type of inflation,” Minami said.
The rises also come as Abe considers introducing a sales tax plan next year, which Minami, among other analysts, warns could smother any economic recovery.
The planned rise “will weigh on prices as the move is likely to kill the current positive momentum in prices by damping consumer sentiment”, he said.
Japan plans to raise its five-percent sales tax to eight percent in April 2014 and to 10 percent in October 2015 to help tackle mounting public debt as the population ages.
The government is expected to make a final decision in September on whether to go ahead with the hike.
Finance Minister Taro Aso said Friday the latest economic data showed a continued recovery in the world’s third largest economy and would positively influence a tax hike decision.