Japanese inflation picked up in March for the first time in 10 months, data showed Friday, but household spending tumbled in a worrying sign for consumer confidence. Core inflation, excluding volatile fresh food prices, hit 2.2 percent year-on-year, accelerating from the previous month for the first time since May 2014, and offering a sliver of hope for Tokyo's war on deflation. However, stripping out the impact of a sales tax rise last year, the rate was a tepid 0.2 percent, well short of the central bank's 2.0 percent target.
Analysts say central bank policymakers will almost certainly be forced to expand its monetary easing scheme to jack up prices and counter a downturn in the world's number three economy.
Sustained inflation is a cornerstone of Prime Minister Shinzo Abe's drive to conquer stagnant or falling prices and revive growth. "Inflation is still close to zero and could drop in the coming months," said Takeshi Minami, chief economist at Norinchukin Research Institute. "The reading was a little bit positive, but worries (for the Bank of Japan) have not disappeared." Separate figures showed household spending in March dropped almost 11 percent, the worst on record since comparable data started in 2001 and steeper than an 8.2 percent on-year decline in March 2011, when Japan was hammered by a quake-tsunami disaster and nuclear crisis.
On Thursday, the BoJ conceded the original timeline for hitting its price target would be missed, as it cut its growth and inflation forecasts. Japan's gross domestic product will expand 2.0 percent in the year to March 2016, while the inflation rate is seen at 0.8 percent, the BoJ said in a semi-annual report. That compares with a previous estimate of 2.1 percent and 1.0 percent respectively.
The report - which followed a meeting where policymakers held fire on fresh stimulus - pushed back an already murky timeline for hitting the bank's inflation target to the first half of fiscal 2016, which runs from April through September next year. The ambitious goal was originally supposed to have been achieved around two years after the launch of the BoJ's stimulus in April 2013.
But the bank has, over time, loosened that timeline as the data suggested it was unattainable. Weighed by a plunge in oil prices and tepid consumer spending, Japanese inflation stalled in February for the first time in nearly two years. "It is true that the timing for achieving the 2.0 percent inflation target has been delayed," BoJ governor Haruhiko Kuroda told reporters on Thursday.