Consumer prices rose in July at their fastest pace in almost five years, government data released Friday showed, giving cheer to the administration’s easy-money policy but putting a strain on workers owing to slow wage growth.
The reading, which excludes volatile prices of fresh food, was up 0.7 percent from a year earlier, the biggest rise since a 1 percent increase in November 2008 when expensive energy imports temporarily offset domestic deflationary pressure.
It also follows June’s 0.4 percent increase, which marked the first rise in 14 months, according to the internal affairs ministry.
The jobless rate eased to 3.8 percent in July — its lowest since October 2008 — from 3.9 percent in June, the ministry added.
Separately, the Ministry of Economy, Trade and Industry said factory output rose 3.2 percent in July, reversing a revised fall of 3.1 percent the previous month.
The latest numbers will provide a lift for Prime Minister Shinzo Abe, who has pledged to reverse 15 years of deflation with active spending.
The latest factory output numbers are “good if we consider exports, which weren’t that favorable during the month,” said Norinchukin Research Institute chief economist Takeshi Minami. “It shows the economic recovery remains intact,” he told Dow Jones Newswires.
Mizuho Securities Research and Consulting senior economist Norio Miyagawa said price rises are “further proof that the economy is solidly recovering. The next challenge is how soon it will start pushing up wages.”
The core CPI for Tokyo’s 23 wards in August, which indicates nationwide price moves down the road, rose 0.4 percent to 99.5, marking the fourth straight monthly gain.
Separate data showed the country’s average monthly household spending rose an inflation-adjusted 0.1 percent in July from a year earlier to ¥286,098 for the first rise in three months.
The government left its basic assessment unchanged from the previous month that household spending is “picking up.”
The income of salaried households increased 1.3 percent to an average ¥569,174, rising for the fifth straight month.
Although there are early positive signs of the effect of Abe’s policies, the higher consumer prices were fueled by increases in the cost of electricity and gasoline, which could put a strain on workers amid stagnant wage growth.
The price increases in the past two months have largely represented “cost-push” inflation, driven by high global energy prices as well as a weaker yen that has made imports more expensive, Norinchukin’s Minami said.
“It’s a key for Japan whether we can smoothly shift from cost-push to demand-pull type of inflation,” Minami said.