Japan's rising inflation and output a boost for Abenomics

PUBLISHED : Saturday, 30 November, 2013, 4:27am
UPDATED : Saturday, 30 November, 2013, 7:13am

Consumer inflation in Japan accelerated to a five-year high last month and a narrower price measure increased at its fastest pace in 15 years, more evidence that Prime Minister Shinzo Abe's aggressive policies are forging an escape from deflation.

Data released yesterday also included encouraging signs an economic recovery is broadening and will extend into next year, with factory output rising for a second consecutive month and the availability of jobs at the highest in nearly six years.

That bodes well for Abe's goal of reinvigorating the world's third-largest economy and casting off 15 years of deflation through his "Abenomics" stimulus, as rising output and demand for workers should help increase wages and spending.

Indeed, Bank of Japan governor Haruhiko Kuroda reiterated his view yesterday that inflation would reach a target of 2 per cent in coming years - a goal that has been openly challenged by a third of his board.

Economists said the pace of acceleration in inflation may taper off, with spending boosted by consumers buying up before a sales tax increase in April, but the recovery seemed secure.

"We expect core inflation to approach 1 per cent at the end of this year and then to rise more gradually next year," said Hidenobu Tokuda, economist at Mizuho Research Institute. "We are making progress towards ending deflation."

The core consumer price index, which excludes prices of fresh food but includes oil products, rose 0.9 per cent year on year last month. That marks a fifth month of gains, and the biggest year-on-year growth since November 2008.

So-called core-core inflation index, which excludes food and energy prices, rose 0.3 per cent year on year last month. It was the first rise in the series in five years, and the fastest increase since August 1998.

Economics Minister Akira Amari said the figures showed clear progress in the battle against deflation, but Finance Minister Taro Aso sounded more cautious, saying one month of data could not confirm a trend.

Industrial output rose 0.5 per cent last month, the second monthly rise. Manufacturers forecast output would rise 0.9 per cent this month and 2.1 per cent next month.

The jobless rate held steady at 4 per cent and the jobs-to-applicants ratio rose more than expected to 0.98.