Japan's Core CPI Climbed 0.7% In September, Shows Economy Heading Toward End Of Deflation

Japan's core consumer price index, or CPI, climbed 0.7 percent last month from the previous year, government data revealed on Thursday.

The rise, which is almost the fastest growth in nearly five years, is a sign that Japan's economy is heading toward the end of 15 years of deflation, according to Bloomberg News. And, underpinning a revival in the world’s third-biggest economy is fiscal and monetary stimulus.

“Today’s data show that an entrenched deflationary trend is coming closer to ending,” Akiyoshi Takumori, chief economist at Sumitomo Mitsui Asset Management Co. in Tokyo, told Bloomberg News. “Wage growth will be key to cushioning the price increases.”

The core CPI, which excludes fresh food and includes oil products, matched a median forecast by economists, the data from the Ministry of Internal Affairs and Communications showed. Prices excluding energy and perishables were unchanged.

September became the fourth consecutive month of gains, and it came after a 0.8 percent increase in August, the most rapid climb since November 2008, when it moved up 1 percent, Reuters reported.

The core-core inflation index, which doesn't include energy and food prices and is similar to the core index that's used in the U.S., was flat last month compared with a year earlier. The core-core CPI stopped falling for the first time since December 2008, Reuters noted.

According to Bloomberg News, higher energy costs and a yen down about 11 percent against the dollar in 2013 have been driving the price gains, rather than stronger domestic demand that Prime Minister Shinzo Abe needs for a sustained rebound.

In order for his policies, popularly known as 'Abenomics,' to work, companies have to boost wages. “The driving force pushing up inflation has been energy prices and the weak yen,” Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute in Tokyo, told Bloomberg News. “Prices are going to rise for a while.”

Available one month before the nationwide data, core consumer prices in Tokyo rose 0.3 percent in October from the previous year, and matched the median market forecast, Reuters reported.