Japan struggles to inflate

Japanese inflation fell in May, raising the possibility that the central bank may need to step up its stimulus efforts further to deliver its 2 per cent target.

Excluding fresh food, consumer prices were up by just 0.1 per cent on a year earlier, against 0.3 per cent growth in April. The Bank of Japan has embarked on a massive programme of quantitative easing in order to break the two-decade grip of deflation on the country.

Core inflation did rise above 2 per cent last year but it has since slumped back as Japan, like the rest of the world, has been affected by the deflationary forces unleashed by the collapse of the global oil price.

Other economic data yesterday suggested a tightening in labour market conditions, which should ultimately push inflation back to target. The job-to-applicant ratio rose to a 23- year high of 1.19 in May, while the unemployment rate edged down to 3.32 per cent.

But some analysts said it was not certain this would be sufficient to erode the spare capacity in the economy and boost price growth. “The [central] bank will have to step up the pace of easing before too long, perhaps as soon as October,” said Marcel Thieliant of Capital Economics.