Tokyo, 28 Nov, 2014:Â Japan’s inflation rate slowed to its lowest level in a year reflecting a decline in crude oil prices and weak domestic demand, casting further doubts on the Bank of Japan’s efforts to achieve its 2% inflation target as the economy sank into recession.
Adjusted for an increase in the sales tax to 8% from 5% in April, the nationwide core consumer-price index rose 0.9% from a year earlier in October, after climbing 1.0% in the previous month, the government said Friday. The figure is the lowest in 12 months, slowing substantially from a high of 1.5% in April. The fall matched economists’ expectations in a poll conducted by The Wall Street Journal and the Nikkei.
The data deal another blow to Prime Minister Shinzo Abe ahead of a Dec. 14 general election he called after delaying another planned tax increase. Japan’s economy shrank for a second quarter in a row, pushing the country into recession after the April tax increase weighed heavily on consumer spending.
The slowdown in growth and prices could make it more difficult for the central bank to raise inflation expectations, an important piece of BOJ Gov. Haruhiko Kuroda’s plan to push the inflation rate up to 2% by around next spring. The BOJ surprised markets in late October when it unleashed a fresh round of easing in what Mr. Kuroda has described as a “pre-emptive” move to underpin inflation expectations.
But even Mr. Kuroda, who said inflation would stay above 1%, has recently adopted a more cautious tone. During a news conference following the Nov. 19 BOJ policy board meeting, he said inflation could slow below 1% due to falling oil and commodity prices.
The core CPI figure, factoring out volatile perishable foods, is regarded by the BOJ as the most important indicator to gauge the inflation trend. The core CPI in the Tokyo metropolitan area for November, a leading indicator of next month’s nationwide CPI, rose 0.5% on year after adjustment for the tax increase. That matched economists’ forecast and compared with 0.6% the previous month.
On Wednesday, BOJ policy board member Sayuri Shirai said the pace of the slowdown in the CPI was greater than expected, and said it was likely the rate of on-year price growth decelerating to less than 1% in October. She expected the CPI would log similar rises in the near-term, but dismissed imminent chances of further central bank action.
Separate data released Friday showed that the country’s unemployment rate improved to 3.5% in October while household spending figures declined 4.0% from a year earlier.