Japan household spending fell in May, jobless rate lowest in more than a decade

A woman stands in front of a luxury brand store as people walk past at a shopping district in Tokyo on June 26, 2014. -- PHOTO: REUTERS
A woman stands in front of a luxury brand store as people walk past at a shopping district in Tokyo on June 26, 2014. -- PHOTO: REUTERS

TOKYO (REUTERS) - Japan's household spending unexpectedly fell in May as an increase in sales tax continued to hurt consumption, raising doubts about the Bank of Japan's optimistic economic outlook.

Other data showed Japan's core consumer inflation eased slightly in May when excluding the effect of a sales tax hike. It is seen slowing in coming months as the boost from a weak yen fades, but the moves in consumer prices are in line with BOJ forecasts.

The jobless rate fell to its lowest in more than a decade, while a measure of labour demand hit the highest in two decades, although it may take time for the strong labour market to lift consumer spending after the tax hike.

Separate data showed household spending continued to pull back in May after it was hit by an increase in the domestic sales tax on April 1, a weak omen for the economy.

The nationwide core consumer price index (CPI), which includes oil products but exclude volatile cost of fresh food, rose 3.4 per cent in the year to May, data showed on Friday, matching the median market forecast.

That was the fastest since April 1982 as the sales tax hike pushed up prices across the board. In April, core consumer prices rose an annual 3.2 per cent. Excluding the sales tax hike, core consumer inflation stood at 1.4 per cent, a tad slower than the 1.5 per cent annual increase in the previous month.

The BOJ estimates that the sales tax rise to 8 per cent from 5 per cent, which took effect on April 1, would add 1.7 percentage points to Japan's annual consumer inflation in April and 2.0 points from May onwards.