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Energy-driven inflation rate puts pressure on Abe to engineer wage hikes

Bloomberg

Inflation in August accelerated at its fastest pace since 2008 on higher energy costs, underscoring pressure on Prime Minister Shinzo Abe to drive wage increases as he seeks to end the nation’s 15-year deflationary spiral.

Consumer prices excluding fresh food gained 0.8 percent from a year earlier, the government said Friday.

The median forecast of 30 economists surveyed by Bloomberg News was for a gain of 0.7 percent, as the yen’s 20 percent slide against the dollar in the year through August drove up fuel costs.

If energy and perishables are excluded, however, prices actually fell, by 0.1 percent, the government said.

While the data point to early success for Abe, a consumption tax increase scheduled for next April would likely increase the burden on households and act as a drag on the economic rebound. Abe is set to make a final decision on the levy Oct. 1, plus an expected stimulus package.

“Without pay increases, households’ purchasing power will gradually weaken. Abe will have to keep up his campaign on companies for wage growth,” said Taro Saito, director of economic research at NLI Research Institute in Tokyo.

Gasoline prices this month rose to the highest level since 2008, according to the Ministry of Economy, Trade and Industry. Meanwhile, the last operating nuclear reactor was halted for maintenance Sept. 15, leaving Japan without atomic power for the first time since July 2012 and even more dependent on imported fuel.

Abe last week began a series of meetings with business and trade union leaders to press his case for wage hikes, key to the success of his effort to spur growth under his economic plan dubbed “Abenomics,” which is based on artificially stoking 2 percent inflation.

Salaries in July extended their longest slide since 2010, with regular wages excluding overtime and bonuses falling 0.4 percent from a year earlier to mark a drop of 14 months straight. In the absence of higher incomes, rising prices have dented consumer sentiment, which could in turn undermine consumption and Abenomics.

Consumer confidence in August fell for a third consecutive month, and sentiment among merchants declined for a fifth month in a row.

Last week, BOJ Gov. Haruhiko Kuroda said the economy is moving “smoothly” toward attaining the 2 percent inflation target the central bank aims to achieve in two years through unprecedented monetary easing.

Mos Food Services Inc. said this earlier in the week it would raise the price of hamburgers at its Mos Burger restaurants for the first time in five years. Yakult Honsha Co. said Sept. 10 it would replace a fermented milk product with a new version that costs 14 percent more — its first hike in 22 years.

The core CPI could rise 1 percent year on year at the end of 2013 if a sales tax hike encourages consumers to front-load spending, Azusa Kato, senior economist at BNP Paribas SA in Tokyo, said before the data were released.