-Marcel Thieliant, economist at Capital Economics
Japan's inflation remained subdued, while consumers opened their wallets, with household spending unexpectedly rising for the first time in more than a year. Japan's core inflation, excluding volatile fresh food, edged higher by 0.1% on year in May, compared to the 0.3% growth in April, and beating economists' expectations for zero growth. At the same time, Tokyo core CPI measure climbed 0.1% in June, following the 0.2% rise in the preceding month. Lower fuel prices and other energy costs curbed consumer prices gains in the world's third biggest economy. The Bank of Japan remains concerned that a deflationary mind-set might re-emerge among consumers if it takes too long for inflationary pressures to start building again.
A separate report showed household expenditures jumped 4.8% year-on-year in May, recording the first increase since the Japanese government lifted sales tax in April last year in an attempt to pay down a large national debt. Higher household spending and low unemployment may both boost price pressures. Despite the improvement, spending has not yet recovered to pre-hike level. Thus, analysts believe the Bank of Japan will be forced to deploy additional stimulus measures to fuel price gains and underpin economic growth.
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