Japan's consumer inflation ground to a halt for the first time in more than two years and household spending unexpectedly fell in July, heightening pressure on policymakers to offer fresh fiscal and monetary support to underpin a fragile recovery. The gloomy data, coupled with soft exports blamed on China's slowdown, reinforces the dominant market view that any rebound in growth from a contraction in April-June will be modest.
But with premier Shinzo Abe's stimulus measures having failed to significantly boost wages, exports and prices, analysts doubt whether additional monetary easing or fiscal spending will have much effect in reflating the economy. "You can't stop overseas headwinds with policy measures, so it will be a waste of money," said Taro Saito, senior economist at NLI Research Institute. "Traditional pork-barrel spending focused on public works spending won't do the trick."
The core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, was unchanged in July from a year earlier, government data showed on Friday, against a median market forecast for a 0.2 percent drop. That was the slowest pace of growth since May 2013, with sharp declines in oil offsetting price rises for a growing number of items like hotel rooms and television sets.
Separate data showed household spending fell 0.2 percent in the year to July, confounding forecasts for a 1.3 percent rise and reinforcing concerns on the strength of Japan's recovery. Big-ticket items such as cars and housing renovations remained particularly weak, a sign consumers were still reluctant to spend after splashing out ahead of last year's sales tax hike.
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