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Japanese inflation blossoms to 23-year high

Consumer prices in Japan have climbed at the fastest rate since 1991, largely because of a new sales tax. But buying tapered off and retail sales plummeted.

Japan's inflation rate jumped to its highest level in over two decades, data showed Friday, but the 3.2-percent rise was mostly due to a tax increase that kicked in last month.

Still the increase confirmed that the economy is continuing out of a damaging period of prolonged deflation that squashed consumer demand and slowed growth for almost twenty years.

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How Japan is fixing its economy

The world's third largest economy

raised sales tax

from 5 percent to 5 percent in April.

The Bank of Japan estimated that this accounted for about 1.7 percent of last month's rise in consumer prices. With that factored out, Japan's inflation still fell short of Prime Minister Shinzo Abe's inflation target of 2 percent.

Retail sales battered

Economic data from Thursday showed that retail sales fell 13.7 percent in April from March, but that was interpreted as partly the result of a surge in spending in March, before the tax rise.

Household spending data also showed its biggest monthly drop since March 2011 when the earthquake that set off the Fukushima nuclear catastrophe rocked Japan.

The International Monetary Fund said Friday that Japan appeared to have absorbed April's tax increase and forecasted that exports would rise as overseas demand gained traction.

The IMF also projected inflation would remain under the 2 percent goal at 1.1 percent for this year and encouraged Japan to maintain its monetary easing policies started last year.

kpc/cjc (Reuters, AFP)

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