Updated: 06/27/2014 08:57 | By Agence France-Presse

Japan tax hike boosts inflation, hurts spending in May

Japanese consumer inflation rose at the fastest pace in decades in May on a sales tax hike, while household spending plunged after a pre-rise shopping spree, data showed Friday.


Japan tax hike boosts inflation, hurts spending in May

People strolling in Tokyo's Ginza shopping district, June 14, 2014 - by Yoshikazu Tsuno

Japan's core consumer prices, stripping out volatile fresh food prices, rose 3.4 percent year-on-year in May, the internal affairs ministry said.

It was higher than a 3.2 percent increase in April and matched market expectations.

The consumption tax rise, from 5.0 percent to 8.0, was seen as crucial for shrinking Japan's mammoth national debt, proportionately the worst among wealthy nations.

However there have been fears it will derail a budding economic recovery by taking a bite out of consumer spending.

Data released Friday seemed to bear that out, showing Japan's household spending plunged 8.0 percent on-year in May after falling 4.6 percent in April.

Retail sales edged down 0.4 percent in May compared with a 4.3 percent fall in April.

However, economists say the turndown in consumption in the aftermath of the tax rise was largely a simple displacement.

Consumers had gone on a spending spree before the first sales tax jump in 17 years, snapping up everything from big-ticket items like cars and refrigerators to everyday goods like toilet rolls and rice.

On the bright side, data showed the jobless rate in May fell to a nearly 17-year low of 3.5 percent in May.

The rate edged down from 3.6 percent in April, hitting its lowest level since December 1997 when unemployment was also at 3.5 percent.

The higher inflation rate in May represented the fastest increase in prices since April 1982, but the rise stemmed largely from the sales tax hike.

Excluding the effect of the higher tax on prices, Japan's core consumer prices were estimated to have risen 1.4 percent in May, just below a 1.5-percent increase for April but within the range expected by Bank of Japan governor Haruhiko Kuroda.

Capital Economics said in a note that it believed "underlying inflationary pressure has eased".

The central bank has targeted 2.0 percent inflation excluding the tax hike effect.

Shinzo Abe's government has put conquering deflation and stoking growth in the world's third-largest economy at the top of its agenda with a policy blitz dubbed "Abenomics".

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