Japan inflation ticks up, weak spending weighs

Inflation in Japan rises by 0.2 percent in March, matching analyst expectations

Japanese consumer prices rose in March, data showed Friday, but a drop in factory output and still-weak household spending underscored the challenges facing policymakers as they battle on-and-off deflation.

The figures came a day after Japan's central bank modestly boosted its economic growth forecast, even as its chief warned an inflation target -- already running four years late -- was likely to be delayed once again.

Consumer prices rose in March for the third straight month on the back of higher energy costs, data from the internal affairs ministry showed.

After stripping out the volatile cost of fresh food, nationwide consumer prices increased 0.2 percent from a year earlier.

"Inflation is expected to rise for now thanks to the recovery in energy prices, but those gains are likely to be very limited," Japan Research Institute economist Yusuke Shimoda said.

"Japan's economy is growing but people are keeping a tight hold on the purse strings."

Separate data showed household spending fell 1.3 percent in March from a year ago -- the 13th consecutive monthly drop -- and output at the nation's factories shrank by 2.1 percent.

While Japan's job market is tight -- the unemployment rate was at 2.8 percent in March -- individual spending, which accounts for more than half of the country's GDP, has remained in the deep freeze.

This month the International Monetary Fund raised its growth forecast for Japan's economy this year and next, citing a pickup in exports, but warned that a shrinking labour force and below-forecast inflation would curb longer-term expansion.

The Bank of Japan's most recent business confidence survey showed that firms were more upbeat.

But with cash-rich companies not splashing out on big pay rises, analysts are doubtful about a significant improvement in consumer spending anytime soon.

"The employment situation is definitely strong, while wage and income growth are still quite depressed," Takashi Miwa, chief economist at Nomura Securities in Tokyo, told Bloomberg.

"This is why consumption demand is still quite weak."

Prime Minister Shinzo Abe swept to power in late 2012 on a pledge to cement a lasting recovery through a growth plan dubbed Abenomics.

The scheme -- a mix of aggressive monetary easing and huge government spending along with reforms to the economy -- stoked a stock market rally as it weakened the yen and fattened corporate profits.

But its effect on the wider economy has been less dramatic, with promised reforms slow in coming.