By Leika Kihara
TOKYO (Reuters) - Japan's core consumer prices fell for a seventh straight month and household spending slumped in September, endorsing the central bank's view it will take some time for inflation to accelerate to its 2 percent target as the economy stagnates.
While the sluggish indicators come as little surprise to policymakers, Friday's numbers add to a recent run of gloomy data that will keep the Bank of Japan under pressure to maintain an aggressive stimulus program.
That said, the central bank is likely to hold off on expanding stimulus at its policy meeting next week, despite an expected downgrade in its price forecast that may show Governor Haruhiko Kuroda won't see inflation hit 2 percent before his tenure ends in 2018.
The nationwide core consumer price index, which includes oil products but excludes volatile fresh food costs, fell 0.5 percent in September from a year earlier, matching a median market forecast, government data showed.
A separate index compiled by the BOJ, which strips out the effect of energy and fresh food costs, showed inflation hit a three-year low of 0.2 percent in September, slowing from 0.4 percent in the previous month.
When companies were raising prices and pushing up the BOJ's index, the central bank used it to back up its forecast that inflation will accelerate. Now, the index suggests weak demand may be discouraging price hikes, analysts say.
"Companies are struggling to raise prices because consumption is weak," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"The rise in household income remains modest and people aren't sure economic prospects will brighten ahead, prompting them to withhold spending."
RETAILERS CUTTING PRICES
Households spent 2.1 percent less in September than a year earlier, marking the seventh straight month of declines, even as the jobless rate fell to 3.0 percent, separate data showed.
An increasing number of retailers are cutting prices in the face of sluggish consumption, casting doubt on the BOJ's view that a moderate economic recovery will prop up household spending and help push inflation toward its target.
McDonald's Holdings Japan <2702.T> launched a new discount lunch menu in September. Skylark Co <3197.T>, which was among restaurant chain operators that raised prices in 2013, revamped 70 percent of its menus in June to attract customers seeking cheaper meals.
"An increasing number of companies are starting to feel that prices may not rise much ahead. That's affecting price-setting behavior - particularly among supermarkets," Atsushi Miyanoya, the BOJ's branch manager overseeing the Kinki western Japan region, told reporters earlier this month.
The BOJ has acknowledged that it will take time for inflation to accelerate to its 2 percent target and has revamped its policy framework to one better suited to a protracted battle against deflation.
(Reporting by Leika Kihara; Editing by Eric Meijer)