"Without pay increases, households' purchasing power will weaken gradually. Abe will have to keep up his campaign on companies for wage growth."
- Taro Saito, director of economic research at NLI Research Institute
Japan's inflation rose at the fastest pace since 2008 in August amid high energy costs, putting Prime Minister Shinzo Abe under pressure to drive wage increases as he aims at ending 15-year deflation. The nation's core consumer prices, which exclude volatile fresh food prices but include oil products, jumped 0.8% from the previous year, marking the third consecutive month of rises, according to the Internal Affairs Ministry. The headline figure overshot expectations for a gain of 0.7%, which would have been unchanged from the reading in July. Meanwhile, core CPI for Tokyo, which considered to be the leading indicator for the nationwide trend, rose 0.2% on year and 0.4% - on month. Although, it is the latest evidence that aggressive monetary easing from the BoJ is helping Japan to emerge out of deflation, a sales-tax increase scheduled for April will add to burden on households and threat dragging on the country's economic recover.
While higher energy prices boosted inflation, weaker Yen that has already lost 20% versus the U.S. Dollar inflated the costs of imports, which could add to concern about dampening household spending. Nevertheless, the central bank expressed confidence that prices would continue to increase and approach the 2% inflation goal as robust personal spending allows more companies to pass growing costs on to consumers.
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