Finance ministry data showed household spending and retail sales weakened in February as snowstorms kept many consumers at home, but there are already signs that sales are accelerating this month as shoppers rush to beat a sales tax hike on April 1.
The dip in consumer spending may be disappointing to some, but continued tightness in the labour market could bolster expectations that the economy can weather the sales tax rise to 8% from 5%, and rebound after a temporary slump in the April-June quarter.
The gradual increase in prices is consistent with a narrowing in the negative output gap, said Hiroaki Muto, senior economist at Sumitomo Mitsui Asset Management. (A negative output gap shows the economy is performing below full capacity.) The employment situation will also continue to put some mild upward pressure on prices. Consumer spending came in weak, but it will rebound next month.
The 1.3% annual gain in the core consumer price index, which includes oil products but excludes volatile fresh food prices, matched the median estimate in a Reuters poll.
The gain followed a 1.3% rise in January and December, which was the quickest since the 1.9% seen in October 2008.
The narrower inflation index rose 0.8% in the year to February. That matched a high last hit in April 1998 a sign Japan is pulling further away from deflation.