May inflation seen falling minus tax hike, likely to
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[June 20, 2014]
By Stanley White
TOKYO (Reuters) - Japan's
consumer inflation is expected to ease slightly in May,
excluding a sales tax hike, as gains in gasoline
moderated, but prices are believed likely to accelerate
soon as a tight labor market supports consumer spending.
Demand for new workers in May is expected to remain at the strongest
level in more than seven years, supporting the Bank of Japan's
argument that upward pressure on wages will keep the domestic-demand
driven economy on track.
Consumer spending is expected to decline in May, but at a slower
pace than the previous month in a sign that shoppers are gradually
shaking off an increase in the nationwide sales tax on April 1.
May's data could also suggest that consumer prices are still on
track to meet the BOJ's 2 percent inflation target in about a year's
"Consumer prices are already rising slightly faster than the BOJ
expected, so there's no need for the BOJ to alter its assessment,"
said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan
"The labor market is providing some upside risk to inflation."
The nationwide core consumer price index, which includes oil
products but excludes the volatile prices of fresh fruit, vegetables
and seafood, is forecast to have risen 3.4 percent in the year to
May, according to a Reuters poll of 28 economists.
That would be the fastest since April 1982 as the sales tax hike
pushed up prices across the board. In April, core consumer prices
rose an annual 3.2 percent.
Excluding the sales tax hike, core CPI is expected to rise 1.4
percent in the year to May, a tad slower than the underlying 1.5
percent annual increase in the previous month.
The BOJ estimates that the sales tax rise will add 1.7 percentage
points to Japan's annual consumer inflation in April and 2.0 points
from May onwards.
The consumer inflation data will be released at 8:30 a.m. on June 27
(2330 GMT on June 26).
The jobless rate, which is due at the same time as the consumer
price index, is expected to remain unchanged in May from the
previous month at 3.6 percent. The jobs-to-applicants ratio in May
also expected to remain unchanged at 1.08.
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The jobless rate and the jobs-to-applicants ratio have been hovering
near levels not seen in around seven years, showing consistent
strength in the labor market.
Household spending is forecast to have fallen 2.0 percent in May
from a year ago, a slowdown from a 4.6 percent annual decline in
April, as consumers gradually return to the shops after the tax hike
pushed up prices.
Retail sales for May, which are due at 8:50 a.m. on June 27, are
expected to fall 1.8 percent from a year ago, less than the 4.4
percent decline in the year to April.
The government raised the sales tax on April 1 to 8 percent from 5
percent to pay for rising welfare costs. A second tax hike to 10
percent is scheduled for October next year.
Politicians and some economists worried that the April tax hike
would derail the economy and delay an escape from deflation, but
corporate sentiment surveys suggest the dip in activity after the
tax increase is not as large as some pessimists had feared.
(Editing by Eric Meijer)
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