Japan core consumer inflation grinds to halt in Feb

Keeps the central bank under pressure to expand monetary stimulus later this year

Japan's annual core consumer inflation ground to a halt in February, the first time it has stopped rising in nearly two years, keeping the central bank under pressure to expand monetary stimulus later this year.

Other data published on Friday didn't offer much solace either, with household spending slumping even as job markets continued to improve, underscoring the challenges premier Shinzo Abe faces in steering the economy towards a solid, sustainable recovery.

While the Bank of Japan has stressed that it will look through the effect of slumping oil prices, the soft inflation data will keep it under pressure to expand monetary stimulus to jump-start price growth towards its 2% target.

Stripping out the effect of last year's sales tax hike, the core consumer price index was flat from a year ago, moving further away from the central bank's price goal. The last time core CPI did not rise was in May 2013, when it was flat.

"Core consumer prices may fall as much as 0.5%, though they will hit bottom around July and rise towards the end of this year," said Junko Nishioka, chief economist at Sumitomo Mitsui Banking Corp.

"The BOJ already expects oil price falls to put downward pressure on consumer inflation, so today's data does not suggest it will ease monetary policy again any time soon," she said.

The headline core CPI, which includes oil but excludes volatile fresh food prices, rose 2.0% in the year to February, falling short of a median market forecast for a 2.1% rise, data by the Internal Affairs ministry showed.

The seventh straight month of slowdown was largely due to continued falls in fuel costs, which will likely keep inflation roughly around zero at least until the middle of this year, analysts say. Most expect the BOJ to top up last October's stimulus in the second half of this year.

The cooling in inflation, if it persists, will hamper BOJ Governor Haruhiko Kuroda's battle to eradicate the deflationary mindset that had led to nearly two decades of stagnation.

Adding to the gloom for the world's third-largest economy, household spending fell 2.9% in the year to February to mark the eleventh straight month of declines.

Policymakers expect the slowdown in inflation, including the falling cost of gasoline, and rising wages to boost household spending in coming months and support a fragile recovery.

But the weakness in consumption may drag on growth more than expected if small companies do not follow the footsteps of big manufacturers in raising base pay, analysts say.

In a glimmer of hope, job markets continued to tighten with the unemployment rate falling to ~% in February from 3.6% in January.

Japan's economy emerged from last year's mild recession as exports and factory output rebounded, although the recovery remains fragile given sluggish household spending.