Japan’s economy is gaining momentum, data for October showed, with consumer prices excluding food and energy rising 0.3% from a year earlier, the biggest gain since 1998.
However, household spending remained tepid, as incomes slipped from the same month a year before.
The series of indicators released today suggests that the ultra-loose monetary policy and stimulus strategy of Prime Minister Shinzo Abe is helping end a long bout of deflation for the world’s third largest economy.
Industrial output rose 0.5% in October, the second successive month of increase, driven by increases in production of machinery used to make computer chips and other industrial products, plastics and mobile phones.
The government reported that excluding food, the core consumer price index rose 0.9% from the year before. Including both food and energy, prices rose 1.1%.
Japan’s jobless rate remained flat in October, though the number of jobs available rose slightly.
Further improvement is expected in November, driven by strength in housing construction and exports.
“Business conditions in the Japanese manufacturing economy improved for the ninth consecutive month and at a rapid pace in November, driven for the most part by an expansion of both foreign and domestic demand,” said Claudia Tillbrooke, an economist at Markit.
Markit’s purchasing managers index, which measures manufacturing activity, rose to 55.1 in November from 54.2 in October. A reading above 50 suggests expansion.
The government and central bank have set a target for attaining a 2% inflation rate within two years.
So far, economists say most of the increase in prices has come from a weakening in the Japanese yen, which erodes consumer spending power and increases costs in yen terms for imports of fuel, food and industrial components.
The 0.3% rise in prices excluding food and fuel was the highest since August 1998 and the first positive reading since 2008.
Prices for many daily necessities have risen. The data from October showed costs for electricity rose 8.2%, food prices rose 14%, transport costs climbed 3%, petrol 7% and insurance rates 10%.
Japan’s economy grew 1.9% in July-September, sharply lower than the 3.8% rise in the previous quarter.
A planned 0.3% increase in April in the national sales tax, to 8%, is expected to push consumer spending higher in the coming months, before a drop following the tax hike.
To sustain the recovery that began late last year, economists say companies must invest more and increase wages. Progress toward those goals appears limited.
Workers’ incomes fell an average of 1.3% in October. Household spending, which accounts for nearly two-thirds of Japan’s economic activity, rose 0.9% in real terms but showed no increase from the month before.
Excluding housing costs, spending fell 1.5% from the month before and fell 0.3% from September.