Japan inflation rate hits 23-year high

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Consumer prices in Japan rose at their fastest pace in 23 years in April, following an increases in sales tax.

Prices rose 3.2% compared with the same period last year, beating analysts' forecasts of a 3.1% jump.

The government raised its sales tax rate from 5% to 8% on 1 April.

Japan has been battling deflation, or falling prices, for best part of the past two decades, and policymakers have said that ending that cycle is key to reviving the country's economy.

Falling consumer prices hurt domestic demand as consumers and businesses tend to put off purchases in the hope of getting a cheaper deal later on.

'Start rising'

Start Quote

Consumer spending has declined as expected in April, but this is likely to be minor blip and will not affect the ongoing recovery”

End Quote Martin Schulz Fujitsu Research Institute

The Japanese government has taken various steps over the past few months to try and reverse this trend, and have set a target of a 2% inflation rate.

The measures, which include boosting the country's money supply, have started to have an impact and consumer prices in the country have now risen for 11 months in a row.

The hope is that once prices start to rise, it may force consumers and business to spend more money and not hold back on purchases, as they may have to pay more later on.

But there have been some concerns that higher inflation may trigger a decline in spending.

Data released on Friday showed that household spending fell 4.6% in April, compared to a year earlier.

That follows a 4.4% decline in retail sales during the month.

However, analysts said the decline in spending was in part due to consumers rushing to make purchases ahead of the tax rise. That had been evident in March, when sales surged 11% - the fastest pace of growth since March 1997.

"Consumer spending has declined as expected in April, but this is likely to be minor blip and will not affect the ongoing recovery," Martin Schulz, of Fujitsu Research Institute told the BBC.

"Both consumer spending and retail sales will start rising in the latter half of the year."

Bu Mr Schulz added the government needs to introduce reforms in key sectors of the economy for the recovery to sustain in the long run.

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