Prices in Japan kept climbing in September, the government said on Friday, but the pace of inflation appears to have peaked this summer as energy costs ease.
The result should pave the way for the central bank to place a bigger emphasis on downside risks to the Japanese economy, and bolsters speculation that it may cut interest rates later in the day.
Core inflation, which excludes fresh food prices, jumped 2.3 percent during the month from a year earlier on still-high fuel and food costs, according to the Ministry of Internal Affairs and Communications. Although the result marks the 12th consecutive month of increase for the core consumer price index, it is slower than August's 2.4 percent rise.
Fuel costs in particular are cooling, with gasoline prices rising 20.7 percent in September, down from 26.4 percent in August.
Economy Minister Kaoru Yosano said there would be a time lag until consumers significantly benefit lower crude oil prices but described the current CPI level as "healthy," according to Kyodo news agency.
"The reason why crude oil prices declined is because the age for feverish oil buying came to an end," Kyodo quoted Yosano as saying. "The outlook for global demand for crude oil seems to be weakening a bit."
Despite the global financial crisis, a faltering domestic economy and extreme market volatility, the Bank of Japan has so far left monetary policy untouched even as central banks around the world lower rates.
It kept its key interest rate at 0.5 percent earlier this month, reiterating its long-held stance that the world's second-largest economy faced both upside and downside risks.
But a series of weak economic data recently point to broader gloom ahead.
The government reported Friday that average monthly household spending fell 2.3 percent from a year earlier to 281,433 yen ($2,862).
While the figure was better than the 3.4 percent average decline forecast by Kyodo news agency, the fall is nonetheless bad news for an economy dependent on consumer spending for growth. Individual spending accounts for more than half of Japan's gross domestic product.
Also, the latest industrial output data released Wednesday showed that production is expected to fall 2.3 percent in October and 2.2 percent in November, as exporters including automakers scale sharply back.
Investor hopes for a rate cut intensified this week after The Nikkei financial daily reported Wednesday that the central bank was mulling a policy shift. The speculation reined in a recently surging yen and helped fuel a rally in the equity markets. The benchmark Nikkei 225 stock average jumped nearly 10 percent Thursday, though it was down 2.7 percent midday Friday.
"There is a growing international trend toward lower interest rates, and I expect the Bank of Japan to make a decision along these lines," Economy, Trade and Industry Minister Toshihiro Nikai told reporters Friday.
Core CPI for the Tokyo area, considered a leading indicator of prices nationwide, rose 1.5 percent in October after increasing 1.7 percent in September.
So-called "core-core" inflation, which excludes both food and energy, inched up 0.2 percent.
Separately, the government said that Japan's seasonally adjusted unemployment rate in September stood at 4.0 percent, down 0.2 percentage point from the previous month.
The number of jobless increased by 20,000 to 2.71 million, the Ministry of Internal Affairs and Communications said.