Japan Tokyo Shopper
A shopper looks at items as she queues in line for the cashier at a discount store in Tokyo on 30 September Reuters

Japan's annual core consumer inflation slowed for a third successive month in October owing to falling oil prices, underlining the challenges facing Premier Shinzo Abe as he canvases for a new mandate to execute his stalled recovery plan.

Government data showed that the core consumer price index (CPI), which excludes unstable fresh food but includes oil products, rose 2.9% on an annual basis in October, meeting expectations.

But the October reading was slower than September's 3% annual gain.

Excluding the effects of April's tax hike, inflation was estimated at 0.9%.

In other data, household spending dropped 4% in the year to October, down for seven straight months, but the reading was slower than September's 5.6% annual decline.

Factory output surprisingly climbed in October, signalling that businesses had reduced inventories of unsold goods built up after April's sales tax hike triggered a recession.

Japan's jobless rate fell to 3.5% from 3.6% in September, while the jobs-to-applicants ratio rose to 1.10, matching levels not seen in 22 years.

BoJ Inflation Goal

Analysts remain doubtful of the Bank of Japan's (BoJ) view that inflation will accelerate to 2% in the fiscal year beginning April 2015, buoyed by a stronger job market and the economy moving closer to its potential output.

One reason for the scepticism is the belief among many economists that the actual reason inflation picked up earlier in the year was high oil prices and a weak yen.

Oil prices have since tanked and are hovering close to a four-year-low, which economists believe could erase the inflationary impact of a weak yen and weigh on consumer price gains even more.

But Finance Minister Taro Aso dismissed those concerns on 28 November and said that Japan was escaping deflation because of rising prices, Reuters reported.

Hidenobu Tokuda, senior economist at Mizuho Research Institute, told Reuters: "Inflation could continue to slow because oil prices are falling. Other data show the economy is recovering, but this is not really because of Abe's policies."

Capital Economics said in a note to clients: "Following a surge in industrial output and retail sales in September, we are not too worried about the small drops in October. Indeed, the labour market remains tight despite sluggish demand. However, price pressure continues to moderate, underlining the BoJ's challenge to lift inflation towards 2%."