Japanese war on deflation gets a boost

TOKYO: The Japanese government’s war on 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 in October, the country’s best result since August 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.

Prime Minister

Shinzo Abe’s government has put conquering deflation and stoking growth at the top of its agenda with a policy blitz dubbed “Abenomics”.

Separate data showed the nation’s unemployment rate was unchanged at 4 percent last month, while household spending rose 0.9 percent.

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.

While falling prices may sound good for shoppers, it can be bad for growth, because they encourage consumers to put off spending.

That makes it difficult for companies to invest and dis- courages them from giving wage rises, which, in turn, reduces consumer spending further.

Also yesterday, data showed Japan’s factory output was up 0.5 percent in October, but the rise was weaker than expected and trailed a 1.3 percent expansion the previous month. It was also well down from a manufacturers’ forecast of a 4.7 percent output rise last month.

Still, the economy ministry painted the figures in a positive light.

The upbeat mood 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 bill soars in the wake of the Fukushima atomic disaster, which forced a nuclear reactor shutdown.

Japan has since been importing fossil fuels to plug the energy gap, a pricey option.

Key to the conservative Japanese premier’s growth plans is the Bank of Japan’s huge monetary easing drive, and a 2 percent inflation target.

Last week, the Bank of Japan held off fresh policy measures to stimulate growth, saying that efforts to stoke inflation were taking hold. – Sapa-AFP