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Inflation

Japanese inflation hits five-year high, and that's good news

Japanese data have shown the world's third-largest economy has logged the highest level of inflation in five years. While this development is a desired 'Abenomics' effect, the reasons behind it give cause for concern.

Data released Friday by Japan's Internal Affairs Ministry showed the country's consumer price index was up another 0.8 percent in August from levels logged in the same month a year earlier.

It marked the biggest monthly rise since November 2008 and also meant the third consecutive monthly jump. On the surface, the figures seemed to lend credence to the economic policies of Japan's conservative leader, Shinzo Abe, which have come to be known as Abenomics.

The Prime Minister has seen broad-based inflation as key to his government's bid to breathe new life into a deflation-plagued domestic economy with a mixture of extra government spending and reforms meshed with monetary easing from the Bank of Japan.

Difficult time for investors

Abe's credo has been to lift prices and wages to get the economy moving again, but there's also another side to Friday's figures. They showed that inflation was primarily driven by soaring energy prices in the wake of the Fukushima nuclear disaster in 2011, forcing the shutdown of Japan's reactors.

In other words, price hikes have not been largely caused by surging demand for everyday goods which power the economy as a whole in a more sustainable way.

"Abenomics is widely heralded as a boon to Japanese society, but the benefits are not being felt evenly," London-based Capital Economics said in a statement. "The sluggishness of wages combined with rising inflation has diminished households' purchasing power," the macroeconomic research company commented.

hg/hc (AFP, Reuters)