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Nov. data gives boost to Japan deflation war

TOKYO -- Japanese consumer inflation rose 1.2 percent last month, its fastest pace in five years, edging closer to the central bank's 2.0-percent target in its war on deflation as Tokyo battles to reverse years of falling prices.

Stripping out volatile food and energy prices, which have largely driven recent increases, prices inched up 0.6 percent in November, the country's best result since August 1998.

The broader consumer price index, which measures a basket of everyday goods but excludes the cost of fresh food, rose 1.2 percent last month from a year earlier, the fastest pace in five years.

Japanese Prime Minister Shinzo Abe's government has put conquering deflation and stoking growth in the world's third-largest economy at the top of its agenda with a policy blitz dubbed “Abenomics.”

The upbeat headline for Friday's inflation data was tempered by the fact that prices were still largely driven up by higher fuel bills, not surging demand for everyday goods such as vacuum cleaners and clothes which power the economy as a whole.

Electricity bills jumped a hefty 8.2 percent, the data showed, as Japan's energy costs soar in the wake of the 2011 Fukushima atomic disaster, which forced the shutdown of the nation's nuclear reactors.

Since the accident, Japan has been importing fossil fuels to plug the energy gap, a pricey option that has become even more expensive as the yen sharply weakened in the wake of the Bank of Japan's unprecedented monetary easing drive.

Friday's data showed prices moving towards the Bank of Japan's ambitious 2.0-percent inflation target — to be reached in just two years.

While deflation may sound like a good thing for shoppers, it can be bad for growth because falling prices encourage consumers to put off spending, knowing they will pay less for a product if they wait.

That makes it difficult for companies to invest and discourages them from hiking wages, which, in turn, reduces consumer spending further.

Despite Abe's much-lauded start since sweeping national elections a year ago, analysts have been warning that Tokyo's bold pro-growth program — a mix of big government spending and central bank monetary easing — is not enough on its own without promised economic reforms.

And getting Japan's notoriously thrifty households to spend more is a key part of Abe's drive, as are yet-to-be-seen widespread wage rises.

That was in evidence Friday with separate data showing Japan's household spending inched up 0.2 percent in November, well below market expectations, as consumers get ready for a sales tax hike next year.

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