Japanese annual core consumer inflation slowed for a fourth straight month in November due largely to sliding oil prices, highlighting the challenges the central bank faces in achieving its two per cent inflation target.

Factory output unexpectedly fell and real wages marked the steepest drop in five years, underscoring the fragility of the recovery and dealing a blow to premier Shinzo Abe’s stimulus policies aimed at pulling the economy out of stagnation.

The core consumer price index (CPI), which excludes volatile fresh food but includes oil pro-ducts, rose 2.7 per cent in November from a year earlier, matching a median market forecast, government data showed yesterday.

Stripping out the effects of a sales tax hike in April, core consumer inflation was 0.7 per cent, slowing from 0.9 per cent in October and far below the Bank of Japan’s 2 per cent target.

Analysts expect growth to rebound in the current quarter as exports and output pick up

“While the economy is recovering, falling oil prices and slowing inflation will force the BOJ to ease policy further at some point next year,” said Hiroshi Watanabe, senior economist at SMBC Nikko Securities.

Japan’s economy slipped into recession in the wake of April’s tax hike, though analysts expect growth to rebound in the current quarter as exports and output pick up.

Factory output slid 0.6 per cent in November after two straight months of gains, largely the effect of big-ticket items such as computer chip-making equipment and boilers boosting October output and confounding market expectations of a 0.8 per cent rise.

In a glimmer of hope, however, manufacturers surveyed by the government expect output to rise 3.2 per cent in December and increase 5.7 per cent in January.