• Bloomberg


Consumer prices in June rose the most since 2008, 0.4 percent from a year earlier, an early sign that Japan’s economy may be starting to shake off deflation, the Internal Affairs and Communications Ministry said Friday.

The median estimate of 29 economists was for a 0.3 percent gain, excluding fresh food, a Bloomberg News survey showed. Excluding energy as well, prices dropped 0.2 percent, continuing more than four years of declines.

As Prime Minister Shinzo Abe’s policies weaken the yen and energy costs rise, the increase in prices points to a gradual shift away from the deflation that has dragged on the economy for 15 years. With the Bank of Japan rolling out unprecedented monetary easing from April, the next challenge for Abe is to loosen constraints on the labor market and companies to achieve sustained growth and the BOJ’s 2 percent inflation goal.

“Japan’s economy is on the right track to pull out of deflation,” said Tomo Kinoshita, chief economist at Nomura Holdings Inc. “The relatively large increase in prices should have a knock-on effect of enhancing consumer and business inflation expectations.”

The weak yen and higher gasoline prices have boosted the cost of goods, said Ryutaro Kono, head economist at BNP Paribas SA in Tokyo, before the data were released.

The yen has shed 21 percent of its value versus the dollar in the past year, pushed down by the BOJ’s unprecedented monetary easing. Gasoline prices this week rose to the highest level since April 2012, according to the Ministry of Economy, Trade and Industry.

Companies have started to pass those costs on to consumers.

Meiji Holdings Co. announced earlier in the week that it will raise milk prices by as much as 4 percent from October, citing higher costs from rising commodity prices and the yen’s fall. Other food companies, such as mayonnaise maker Kewpie Corp. and Yamazaki Baking Co., announced price hikes earlier this year.

Meanwhile, the corporate services price index rose 0.4 percent in June from the previous year, the most since the collapse of Lehman Brothers Holdings Inc. in September 2008 caused the global meltdown, BOJ data showed Thursday. Hotel accommodation and engineering services were among the costs that increased.

Citigroup Inc. said it expects consumer prices to rise at a faster pace of around 0.5 percent in July and August compared to 2012, with the increases easing from September.

A growing number of citizens expect inflation to gain traction, with a BOJ report July 5 showing 80.2 percent of people it surveyed predicting prices will increase in the next 12 months, the highest proportion since September 2008.

Absent an increase in personal incomes, higher consumer prices would reduce the spending power of households, weighing on consumption. Wages haven’t risen in Japan on a sustained basis since the bursting of the asset bubble in the early 1990s, as companies focused on fixing balance sheets and consumers reined in spending.

In May, labor cash earnings fell 0.1 percent from the year before.

Abe has launched monetary and fiscal stimulus and steps to make it easier to do business — a policy mix dubbed “Abenomics” — in a bid to boost the economy and end deflation that has been driven by sluggish demand, excess capacity and a contracting population.

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