Japan inflation slows again in December as spending drops

TOKYO: Japan's inflation rate slipped again in December, data showed Friday, as weak consumer spending and lower energy prices weighed, dealing more challenges to Tokyo's war on deflation.

But a slate of figures released Friday also show that unemployment hit a 17-year low and factory output turned positive last month, suggesting the recession-hit economy may be turning a corner, economists said.

Japan's core consumer inflation slowed for a fifth straight month in December, as the internal affairs ministry reported household spending fell a greater-than-expected 3.4 percent from a year ago.

Consumer prices, excluding volatile prices of fresh food, are a key measure for Tokyo's bid to end years of stagnant or falling prices blamed for holding back the world's number three economy.

Prices had been on the rise, largely due to Japan's heavy post-Fukushima energy bills, but oil rates have tumbled in recent months and spending dived after the government raised sales taxes to 8.0 percent from 5.0 percent last year.

The economy quickly fell into recession, prompting Prime Minister Shinzo Abe to put off a second sales tax rise this year, which was aimed at taming Japan's enormous national debt.

The figures on Friday showed the inflation rate last month was at 2.5 percent, down from 2.7 percent in November. Adjusted for the tax increase, the rate rose just 0.5 percent from a year earlier, well short of the Bank of Japan's 2.0 percent inflation goal which it hopes to reach around the fiscal year ending in April next year.

But earlier this month the central bank slashed its inflation outlook as plunging oil prices make the target look increasingly out of reach. The move boosted speculation that the BoJ would have to further expand its already huge monetary easing programme.

"Inflation is still likely to moderate further," Marcel Thieliant from Capital Economics said in a note after the data was released.

"Less than half of the plunge in the price of crude oil has been passed on to consumers in the form of lower gasoline prices so far. What's more, prices of electricity and gas should at least no longer be rising."