April 5, 2018 / 4:53 AM / a year ago

Japan households' mood slumps, inflation expectations stall: BOJ survey

TOKYO (Reuters) - Japanese households’ confidence on the economy worsened in March for the first time in over a year and their inflation expectations slid, a quarterly survey showed, underscoring the challenge of hitting the central bank’s elusive price goal.

A woman looks at items outside an outlet store at a shopping district in Tokyo, Japan, February 25, 2016. REUTERS/Yuya Shino/File Photo

The survey, which followed the Bank of Japan’s “tankan” poll that showed business mood souring for the first time in two years, suggests the economy may be peaking after enjoying the longest streak of expansion since the 1980s bubble period.

A diffusion index measuring households’ confidence on the economy worsened to minus 12.4 in March from minus 11.9 in December, deteriorating for the first time in five quarters, the BOJ’s survey on people’s livelihood showed on Thursday.

The percentage of respondents who thought prices were rising hit a more than two-year high of 73.5 percent with many complaining of higher fuel and fresh food prices, a sign consumers were feeling the pinch from rising grocery costs.

But despite their view that prices had risen recently, households did not expect inflation to accelerate much in coming years - boding ill for the BOJ’s efforts to eradicate the public’s sticky deflationary mindset with huge money printing.

The percentage of households who expect prices to rise a year from now was at 73.9 percent in March, down from 75.6 percent in December, falling for the first time in two quarters.

“Underlying price gains were driven by higher fuel and fresh food prices. Households may have thought such price gains are temporary and won’t last long,” a BOJ official told a briefing.

Among the surveyed households, 81.0 percent said they expect inflation to pick up five years from now, down from 81.9 percent in December.

The survey, conducted between Feb. 8 and March 6, is among key data the central bank will scrutinize at its rate review this month to see how much its ultra-loose policy is working.

Japan’s economy expanded an annualized 1.6 percent in the October-December quarter, marking the eighth straight quarter of gains, on robust global demand and capital spending.

But core consumer inflation, a key price gauge the BOJ watches that strips away volatile fresh food costs, has been stubbornly sluggish. It stood at 1.0 percent in February, well below the BOJ’s 2 percent target, as slow wage growth keeps consumers from boosting spending.

Many analysts worry that rises in vegetable prices due to unusually cold winter may have hit households and discouraged them from spending on non-necessities.

Subdued price growth may force the BOJ to cut its inflation forecasts when it conducts a quarterly review of its projections at a rate review on April 26-27, some analysts say.

Reporting by Leika Kihara; Editing by Jacqueline Wong and Kim Coghill

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