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Japan’s Inflation Unchanged, Highlighting BOJ’s Challenge

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Aug. 29 (Bloomberg) -- Japan’s inflation rate was unchanged in July after slowing the previous month, highlighting the challenge Governor Haruhiko Kuroda faces in achieving the central bank’s price-growth target.

Consumer prices excluding fresh food rose 3.3 percent from a year earlier, the same pace as June, the statistics bureau said today in Tokyo. This matched the median projection from a Bloomberg News survey of 31 economists. Stripped of the effect of April’s sales tax increase, inflation was 1.3 percent.

The Bank of Japan has said that consumer prices will increase about 1.25 percent for some time before accelerating to reach its 2 percent inflation goal. Any weakness in inflation following the contraction in the economy last quarter may increase pressure on Kuroda to add to stimulus.

“Inflation is unlikely to clearly pick up,” Shinichiro Kobayashi, an economist at Mitsubishi UFJ Research and Consulting Co. said before the data. “The weak economy will make it harder and harder for the BOJ to defend their case that they will achieve 2 percent inflation.”

Overall inflation was 3.4 percent and 2.3 percent excluding perishable food and energy.

The unemployment rate was 3.8 percent and household spending fell 5.9 percent from a year earlier, separate data showed today.

Private consumption, which comprises almost 60 percent of the economy, fell 5 percent in the second quarter from the previous three months as people cut spending after the 3 percentage point increase in the sales levy to 8 percent in April.

The economy contracted 6.8 percent in the three months through June. It will grow by an annualized 2.7 percent in the July-Sept. period, according to a Bloomberg News survey of economists, as the impact the higher tax fades.

Inflation generated by the BOJ’s easing and the sales tax are cutting into consumers’ spending power. Adjusted for rising prices, overall earnings fell 3.2 percent from a year earlier in June, according to the labor ministry.

To contact the reporter on this story: Toru Fujioka in Tokyo at tfujioka1@bloomberg.net

To contact the editors responsible for this story: Brett Miller at bmiller30@bloomberg.net James Mayger

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