Other April data for the world's third-largest economy were largely in line with forecasts. Industrial production fell 2.5 per cent from a year earlier and household spending sank 4.6 per cent. Unemployment was 3.6 per cent, the same as in March.
In its latest assessment of
"Near-term risks to the outlook are balanced, but the sustainability of the recovery over the medium term is at risk," it said.
Consumers and businesses ramped up spending ahead of the tax increase, boosting demand temporarily. The economy is expected to contract or at least slow sharply this quarter. Economists say wage increases are needed to ensure the strong consumer demand that would prompt companies to begin investing more for future growth.
Shortages of labour in some areas, such as construction and trucking, have been pushing prices and to a limited extent wages higher. But so far overall incomes have not kept pace with the tax hike and price increases.
Revving up consumer demand through stronger purchasing power will be crucial, said
"The need for inflation to be meaningful in contributing to a stable and faster growing economy is through demand and not through the input of higher prices," he told a seminar in
The dollar is now buying about
"The sharp fall in import price inflation points to a slowdown in consumer inflation in coming months, which should provide some relief to households' battered finances," Capital Economics analyst Marcel Thieliant said in a commentary.
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