TOKYO – Japan's core inflation rate edged lower in January as lower crude oil prices reduced energy costs, while weak retail sales and employment data underscored the fragility of the recovery of the world's third-largest economy.
Core inflation, excluding volatile food prices, was 2.2 percent, compared with 2.5 percent the month before and the lowest in 10 months. Excluding energy costs and food, the consumer price index was at 2.1 percent, level with the previous two months.
Unemployment rose to 3.6 percent from 3.4 percent the month before.
Prime Minister Shinzo Abe has sought to spur growth by vanquishing the deflation that discouraged investment and spending over the past two decades. But the economy fell back into recession after a sales tax hike on April 1, 2014.
Growth recovered to 2.2 percent in the October-December quarter.
That mild rebound was helped by a surge in exports, especially of machinery and electronic devices, industries that showed an increase in output in January. Manufacturing output rose 4 percent from the month before, exceeding economists' forecasts, but was 2.6 percent lower than a year earlier.
"Firms predict a much smaller 0.2 percent month-on-month increase in February followed by a 3.2 percent month-on-month drop in March. These forecasts tend to overstate the future strength of production, so we may see even bigger falls," Marcel Thieliant of Capital Economics said in a commentary.
Weak consumer demand and corporate investment have dragged on growth, as incomes have lagged behind inflation, and Abe and other officials are pushing companies to raise wages to help support the recovery. Many corporations with global reach have been racking up record profits thanks to a weak yen, which inflates the value of overseas earnings when they are brought back to Japan.
So far, any increases in base pay have been meager, and mostly confined to big companies, which employ a minority of Japanese workers. The small and medium-sized companies that employ nearly three-quarters of all Japanese workers have been squeezed by rising costs and are less able to afford paying higher wages.
Consumers have so far kept their belts tight, after rushing to make purchases ahead of last year's sales tax hike.
Household spending fell by 0.3 percent in January from the month before and by 5.1 percent from a year earlier, suggesting the recovery in private spending remains sluggish, Thieliant said.
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