Japan consumer inflation hits new five-year high, bodes well for BOJ

Reuters

By Leika Kihara

TOKYO (Reuters) - Japan's core consumer inflation rose 0.8 percent in August from a year earlier, hitting a fresh five-year high, a good omen in the central bank's battle to beat 15 years of nagging deflation.

Much of the gain in August came from high energy prices and a weaker yen inflating the cost of imports, which could cause some concern about a negative impact on household spending.

Still, the Bank of Japan has expressed confidence that prices will continue to rise and approach its 2 percent inflation target as robust personal spending allows more companies to pass rising costs on to consumers.

"Consumer spending has been strong, so firms feel more comfortable about raising prices," said Shuji Tonouchi, senior fixed income strategist at Mitsubishi UFJ Morgan Stanley Securities in Tokyo.

"The BOJ is likely to take these numbers positively given that it wants to achieve 2 percent inflation in two years time."

The rise in core consumer prices, which includes oil products but excludes volatile prices of fresh food, was the third straight month of increase and slightly faster than a 0.7 percent rise in July, data from the Internal Affairs ministry showed on Friday.

It was the fastest gain since November 2008, when core consumer inflation hit 1 percent reflecting a spike in global commodity prices.

A 13.2 percent rise in gasoline prices and a 8.9 percent increase in electricity bills were largely behind the increase in core consumer prices.

But prices of durable goods, which have continued to fall for years due to tough competition and weak demand, are falling at a slower pace or even turning up in a sign Japan may be nearing a sustained end to deflation.

Prices of durable leisure goods, such as personal computers and audio visual equipment, rose 0.1 percent in August from a year earlier, turning positive for the first time since 1992.

The so-called core-core inflation index, which excludes food and energy prices and is similar to the core index used in the United States, fell 0.1 percent in August. That was the same pace of decline in July and smaller than a 0.2 percent fall in June.

The BOJ launched an intense burst of monetary stimulus in April, pledging to double the base money through aggressive asset purchases to achieve its 2 percent inflation target in roughly two years.

It has stood pat on policy since then and is widely expected to keep monetary settings unchanged at a rate review next week.

(Additional reporting by Stanley White; Editing by Eric Meijer)

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