Japan inflation ticks up again, but household spending remains weak

People walk on a street in a busy shopping district in Tokyo.
People walk on a street in a busy shopping district in Tokyo.PHOTO: REUTERS

TOKYO (AFP) - Japan's consumer prices rose for the fifth straight month in May, government data showed on Friday (June 30), but weak household spending underlined the challenges facing Tokyo's fight to rid the world's number three economy of deflation.

The country's prospects have been improving on the back of strong exports, with investments linked to the Tokyo 2020 Olympics also giving the economy a shot in the arm. The labour market is tight and business confidence is strong.

But consumer spending remains tepid and the Bank of Japan has struggled to lift inflation despite years of aggressive monetary easing.

After stripping out the volatile cost of fresh food, the inflation rate came in at 0.4 per cent, the fifth consecutive monthly rise following a 0.3 per cent increase in April and a 0.2 per cent gain in both March and February, according to the internal affairs ministry.

But Friday's figures are still way off the Bank of Japan's 2.0 per cent inflation target - seen as crucial to conquering Japan's long struggle to slay deflation, blamed for holding back the once-booming economy.

Separate data showed household spending fell 0.1 per cent in May from a year ago, extending its declining streak of more than a year.

Japan has been struggling to defeat years of deflation and slow growth that followed the collapse of an equity and property market bubble in the early nineties.

Falling prices can discourage spending by consumers, who might postpone purchases until prices drop more or look to save money instead.

That puts pressure on businesses, creating a cycle in which firms then cut back on expanding production, hiring new workers or boosting wages.