Japan Inflation Rises as Consumer Spending Hurt by Harsh Weather

Japan’s consumer prices grew for the ninth consecutive month in February, while demand for labour rose as the economy gathered momentum after years of stagnation and deflation.

Data from the Ministry of Finance indicated that retail sales and household spending fell in February as harsh weather kept citizens confined at homes, though speculation is high that sales will surge this month as consumers rush to beat an April 1 sales hike.

While the results of consumer spending may be disappointing, the strong labour market boosted expectations that the economy can survive the rise in sales tax from 5 percent to 8 percent.

“The gradual increase in prices is consistent with a narrowing in the negative output gap,” Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management, told Reuters. A negative output gap indicates that the economy is operating below maximum capacity.

“The employment situation will also continue to put some mild upward pressure on prices. Consumer spending came in weak, but it will rebound next month.”

The 1.3 percent yearly advance in the core consumer price index, which incorporates oil products but leaves out unstable fresh food prices, was in line with the average estimate in a Reuters’ survey. It came hot on heels of a 1.3 percent growth in December and January, the fastest such growth since October 2008’s growth of 1.9 percent.

Another report indicated that unemployment rate in the country declined to 3.6 percent in February, the lowest such in over six years. Jobs-to-applicants ratio stood at 1.05, meaning there is a labour shortage. The ratio is the biggest since July 2007.

Retail sales rose 3.6 percent on year-on-year basis, while household spending declined 2.5 percent on the same basis in February.