Abenomics describes the plans of Japanese Prime Minister Shinzo Abe to revive growth in the world’s third largest economy, which is struggling to find traction under the impact of a strong yen and stubborn deflation.
Deflation fears ease in Japan as consumer prices rise
Increase in petrol costs and weaker yen fuel 0.8 per cent gain in core inflation
Japan's core consumer inflation hit its highest level in nearly five years last month, while prices of personal electronics rose for the first time since 1992 - signs that the country may be emerging from 15 years of deflation.
Core consumer prices, which include oil products but exclude volatile fresh food prices, rose 0.8 per cent after a 0.7 per cent increase in July, marking the third consecutive month of gains.
It was the fastest rise since November 2008, when core consumer inflation hit 1 per cent, reflecting a surge in global commodity prices, government data showed yesterday.
But most of last month's increase was caused by rising petrol costs and a weaker yen that inflated the price of food imports and may put a dampener on consumer sentiment, which is already showing signs of peaking.
That said, prices of durable leisure goods, such as personal computers and audiovisual equipment, rose 0.1 per cent year on year in August, turning positive for the first time since 1992, in a sector where consumer prices have fallen steadily.
The so-called core-core inflation index, which excludes food and energy prices, dropped 0.1 per cent. That was the same pace of decline as in July and smaller than a 0.2 per cent dip in June, an indication that downward price pressure is ebbing.
Economics Minister Akira Amari said it was too early to declare an end to deflation, stressing that wages and prices excluding energy costs had to rise more.
"Japan is in the process of emerging from prolonged deflation," Amari said yesterday. "An exit from deflation will become distant if we're seeing cost-push inflation, where wages aren't catching up with rising prices."
The Bank of Japan has expressed confidence that prices will continue to increase and approach its 2 per cent inflation target as robust personal spending allows more companies to pass rising costs on to consumers.
Still, Amari said the government could declare an end to deflation only when core-core consumer inflation turned positive and there was enough evidence it would stay that way in the absence of any sudden shocks to the economy.
Some analysts expect core consumer inflation to exceed 1 per cent by the end of this year, mostly on rising energy and food prices. That may weigh on personal consumption, which would also feel the pain from an expected sales tax increase in April.
"The rise in prices of daily necessities is negative for household sentiment and consumption," said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo.
"Companies may raise monthly salaries slightly if the economy remains in good shape. But that won't be enough to offset the decline in real household income next year."