By Leika Kihara
TOKYO (Reuters) - Japan's household spending rose more than expected in May to mark the first annual increase in more than a year, data showed on Friday, a sign consumers are finally resuming spending after last year's sales tax hike pinched their wallets.
But core consumer prices rose just 0.1 percent in the year to May, highlighting how far off the central bank is from hitting its 2 percent price goal and keeping alive expectations for more stimulus later this year.
"The big picture remains that there is still substantial spare capacity in the economy which is dragging down prices," said Marcel Thieliant, Japan economist at Capital Economics in a note to clients.
Household spending rose 4.8 percent in May from a year earlier, more than a median market forecast for a 3.4 percent gain, data by the Internal Affairs Ministry showed.
It marked the first increase since March last year, a sign consumers are finally starting to open their wallets after last year's sales tax hike knocked spending.
The slowdown in core consumer inflation, from 0.3 percent in April, should come as little surprise to the BOJ as it had expected price growth to stagnate for most of this year due to the effect of last year's oil price falls.
Analysts polled by Reuters had projected flat price growth.
With inflation still distant from its ambitious 2 percent target, however, the central bank will remain under pressure to expand an already massive stimulus programme, analysts say.
Japan's economy emerged from last year's recession and expanded an annualised 3.9 percent in the first three months of this year as companies ramped up spending.