By Stanley White
TOKYO (Reuters) - Japan's core consumer prices edged higher in February from a year earlier, but the slow pace of gains suggests the Bank of Japan will need to maintain its ultra-easy monetary policy for some time yet.
The nationwide core consumer price index, which includes oil products but excludes volatile fresh food costs, rose 1.0 percent in February from a year earlier, matching the median estimate of economists in a Reuters poll.
With the effects of volatile fresh food and energy costs stripped out, prices rose an annual 0.5 percent in February, following a 0.4 percent annual increase in January, the data showed.
Consumer prices are likely to continue to grind higher thanks to a tight labour market and modestly rising wages, but yen appreciation threatens to lower import prices, which will keep the BOJ on the lookout for any risks to the positive price trend.
Higher prices for gasoline, kerosene, and utilities were the biggest contributors to the rise in core CPI in February, the data showed.
Excluding these items, gains in CPI were driven by a modest rise in hotel and lodging costs.
The narrower measure of CPI, which excludes fresh food and energy, has been rising at a more subdued pace, highlighting the impact oil and gasoline prices have on broader measures of CPI.
Big Japanese companies agreed last week at annual negotiations with labour unions to raise wages for a fifth year. This should help support consumer spending and inflation, but many companies likely fell short of Prime Minister Shinzo Abe's goal of increasing wages by 3 percent or more.
Japan's unemployment rate is also at a 25-year low of 2.4 percent, which in theory should encourage inflation by putting upward pressure on wages as companies compete for workers.
In practice, however, consumer prices have risen more slowly than the Bank of Japan expected.
The BOJ is at a crossroads because it has been pursuing radical quantitative easing for almost five years with only mixed results, because prices are still some distance from the central bank's 2 percent inflation target.
Governor Haruhiko Kuroda was approved last year for a second five-year term. Two new deputy governors also join the central bank's leadership team, but there is uncertainty about how the BOJ will respond if prices do not accelerate.