"The deflationary trend may be changing. It's too early to say the end of deflation is in sight but we are seeing something we haven't seen for a while"
- Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute
Japanese consumer prices rose in June at the highest annual pace in almost five years, adding to signs of an end to persistent deflation. The Ministry of Internal Affairs and Communications said on Friday that the core consumer prices, excluding fresh food, spiked 0.4%, overshooting analysts' expectations for a 0.3% reading. This was largely due to a rise in electricity bills and a weak Yen, which inflated the costs for gasoline imports. Both overall CPI and core inflation remained unchanged on month after gaining 0.1% and 0.2%, respectively, in May.
Core inflation for the Tokyo region, which is considered to be a leading indicator for the nationwide trend, inched up 0.3% from the previous year in July, being in line with forecasts and up from 0.2% in June. On month, core CPI in Tokyo remained flat, whereas overall inflation rose 0.2%.
The data is an encouraging sign for the Bank of Japan and the Prime Minister Shinzo Abe, who have introduced the unprecedented policy measures earlier this year. The BoJ has set a 2% inflation target to achieve in two years. Abe's government has already witnessed positive signs of its policy mix of monetary and fiscal stimulus as the Q1 data indicated that Japan was the fastest-growing major economy in the world.
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