A woman looks at umbrellas displayed at a luxury department store in Tokyo. Japan’s consumer inflation is expected to ease slightly in May.

Reuters/Tokyo

Japan’s consumer inflation is expected to ease slightly in May, excluding a sales tax hike, as gains in gasoline moderated, but prices are believed likely to accelerate soon as a tight labour market supports consumer spending.

Demand for new workers in May is expected to remain at the strongest level in more than seven years, supporting the Bank of Japan’s argument that upward pressure on wages will keep the domestic-demand driven economy on track.

Consumer spending is expected to decline in May, but at a slower pace than the previous month in a sign that shoppers are gradually shaking off an increase in the nationwide sales tax on April 1.

May’s data could also suggest that consumer prices are still on track to meet the BoJ’s 2% inflation target in about a year’s time.

“Consumer prices are already rising slightly faster than the BoJ expected, so there’s no need for the BoJ to alter its assessment,” said Hiroshi Miyazaki, senior economist at Mitsubishi UFJ Morgan Stanley Securities.

“The labour market is providing some upside risk to inflation.”

The nationwide core consumer price index, which includes oil products but excludes the volatile prices of fresh fruit, vegetables and seafood, is forecast to have risen 3.4% in the year to May, according to a Reuters poll of 28 economists.

That would be the fastest since April 1982 as the sales tax hike pushed up prices across the board. In April, core consumer prices rose an annual 3.2%.

Excluding the sales tax hike, core CPI is expected to rise 1.4% in the year to May, a tad slower than the underlying 1.5% annual increase in the previous month.

The BoJ estimates that the sales tax rise will add 1.7 percentage points to Japan’s annual consumer inflation in April and 2 points from May onwards.

The consumer inflation data will be released on June 27.

The jobless rate, which is due at the same time as the consumer price index, is expected to remain unchanged in May from the previous month at 3.6%. The jobs-to-applicants ratio in May also expected to remain unchanged at 1.08.

The jobless rate and the jobs-to-applicants ratio have been hovering near levels not seen in around seven years, showing consistent strength in the labour market.

Household spending is forecast to have fallen 2% in May from a year ago, a slowdown from a 4.6% annual decline in April, as consumers gradually return to the shops after the tax hike pushed up prices.