UPDATE 2-Japan CPI another signal deflation exit nearer
* Sept nationwide core CPI +0.7 pct yr/yr, matching forecast
Core-core CPI stops falling for first time in almost 5 yrs
* Price gains seen spreading beyond food and energy
* Still a long way to go in meeting BOJ inflation target
(Recasts, adds comments from ministers, analyst, graphic, details)
By Tetsushi Kajimoto
TOKYO, Oct 25 (Reuters) - Evidence is building that Japan's aggressive drive to escape deflation is starting to work, with September data showing a key measure of prices did not fall for the first time in nearly five years.
The news is encouraging for Prime Minister Shinzo Abe, who has pursued a mix of aggressive fiscal and monetary policy to reflate the world's third-largest economy, although success is still far from guaranteed.
The idea is that sustained increases in consumer prices after 15 years of deflation should lead to a cycle of growth, brisk business expenditures and higher wages. While growth has picked up this year, business investment and wages have not.
The so-called core-core inflation index, which strips out food and energy prices and is similar to the core index used in the United States, was flat in September from a year earlier, official data showed.
It was the first time the gauge had not fallen since December 2008, indicating price gains are broadening beyond food and energy.
"The ongoing economic recovery is helping improve demand-supply balance in the economy, leading to push up prices for not only energy but other products such as durable goods," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"The end of deflation is approaching for sure."
The government was more circumspect, as it is keen to ensure complacency does not derail the nascent recovery seen since Abe took office in late 2012.
"The core-core CPI is a good sign, but it is a little strange to say things are doing well simply because prices are rising," Economics Minister Akira Amari told reporters.
"What we need is to ensure that rising wages accompany price gains to ensure healthy economic growth."
Similarly, Finance Minister Taro Aso cautioned that it would take more time to escape deflation due to uncertainties including sluggish exports and China's economic outlook.
CORE PRICES RISE
Core consumer prices, which include oil products but not volatile prices of fresh food, rose 0.7 percent in the year to September, the Ministry of Internal Affairs and Communications said, matching the median forecast of economists.
That was the fourth successive month of a positive headline inflation rate, and it was just below August's 0.8 percent, which was the fastest in nearly five years.
Prices of 226 products in the core consumer price index rose in annual terms in September, while prices of 231 items fell. The corresponding numbers in August were 220 and 240.
"The pace of growth has slowed slightly due to slower gains in energy prices, but travel and food prices have risen, showing consumer spending is placing upward pressure on prices," said Hidenobu Tokuda, economist at Mizuho Research Institute.
Core consumer prices in Tokyo, available a month before nationwide data, rose 0.3 percent in October from a year before, also matching the median forecast.
Despite the increasingly positive signs on inflation, a goal adopted by the Bank of Japan this year to lift the inflation rate to 2 percent in about 2 years is still seen as a big task.
BOJ Governor Haruhiko Kuroda, who unleashed massive monetary stimulus in April to meet this goal, has reiterated consumer inflation is expected to gradually increase.
Some analysts expect core consumer inflation will top 1 percent by the end of 2013 due largely to energy and food prices.
But many see the BOJ's goal as overly ambitious for an economy saddled with a big output gap while companies remain hesitant to significantly boost spending and raise wages.
The central bank is due to release updated inflation and economic forecasts at a policy meeting on Oct. 31.
Japan's growth has outpaced its Group of 7 rich-country peers so far this year, but whether its pace can be sustained remains to be seen as capital spending -- a weak spot in the economy -- has only recently started to show signs of recovery.
(Additional reporting by Leika Kihara and Stanley White; Editing by John Mair)