Japan logs fastest inflation since 1998

Business Materials 28 December 2007 12:14 (UTC +04:00)

( AFP ) - Japan on Friday reported its fastest rise in core consumer prices in almost a decade as sky-rocketing energy costs help to lift Asia's largest economy out of years of deflation.

Meanwhile the jobless rate fell unexpectedly as household spending and industrial output dropped, according to a raft of data for November that painted a mixed picture of the health of the Japanese economy.

Core consumer prices climbed 0.4 percent in November from a year earlier, the largest gain since March 1998, the government said.

Market forecasts had been for a rise of 0.3 percent after October's 0.1 percent gain, which snapped an eight-month losing streak.

Higher energy prices were largely behind the pick-up in inflation, which is likely to slow as global oil prices stabilise, said Mamoru Yamazaki, chief economist for RBS Securities in Tokyo.

"However, even if the contribution of oil products becomes low I believe that the CPI will remain in positive territory," he added.

Core consumer prices for the Tokyo area -- a leading indicator released a month earlier than the nationwide index -- rose 0.3 percent in December.

Despite the return to positive inflation, economists doubt the Bank of Japan will raise interest rates again until mid-2008 at the earliest given uncertainties about the health of the Japanese and global economies.

"Deteriorating external conditions have virtually exhausted the chances of a rate hike in 2008," Morgan Stanley economist Takehiro Sato wrote in a note to clients.

Japan's economy is gradually recovering from a slump stretching back more than a decade, but growth this year has fallen short of expectations amid a shaky global economy and a slump in the domestic housing market.

Economic and Fiscal Policy Minister Hiroko Ota said that the pick up in inflation was "not a desirable price increase" because it was caused by rising oil prices.

Small firms in particular are struggling at the moment against a backdrop of higher energy costs and borrowing costs.

On a brighter note, Japan's unemployment rate dropped to 3.8 percent in November from 4.0 percent the previous month, beating market expectations for no change.

The unemployment total declined by 130,000 from a year earlier to 2.46 million in November, the 24th consecutive monthly fall, the government said.

Even so there were only 99 jobs available for every 100 job seekers, down from 102 in October and 105 in September, the government said.

It was the first time in two years that there were fewer available jobs than job seekers.

"Looking at surveys, many corporations are facing labour shortages," said Yamazaki.

"However, corporations seem to be cautious about increasing their number of employees aggressively given the worsening business conditions," he said.

Despite low unemployment, wage growth remains sluggish due to demographic changes and corporate Japan's reluctance to raise salaries amid fierce competition with rivals in China and elsewhere.

That in turn has weighed on household spending, which fell unexpectedly by 0.6 percent in November from a year earlier, the first decline in four months, official data showed.

Industrial output meanwhile fell by 1.6 percent in November from the previous month. It was the first drop in two months, coming after a rise of 1.7 percent in October.

The government maintained its overall assessment that industrial production "is on a moderately upward trend," predicting that industrial output will rise by 4.0 percent in December from a month earlier, but stay flat in January.