UPDATE 1-Japan's consumer inflation stagnant despite tax hike boost

Leika Kihara

* Oct nationwide core CPI up 0.4% yr/yr, matches f'cast

* Nationwide core-core CPI up 0.7% yr/yr

* CPI data takes into account effect of Oct sales tax hike

TOKYO, Nov 22 (Reuters) - Japan's annual core consumer inflation ticked up only marginally in October despite the boost from a sales tax hike during the month, suggesting weak household sentiment is keeping companies from passing on the higher costs.

The data underscores the challenge the Bank of Japan faces in firing up inflation to its elusive 2% target, as soft global demand and the U.S.-China trade war cloud the outlook for the export-reliant economy.

The nationwide core consumer price index (CPI), which includes oil costs but excludes volatile fresh food prices, rose 0.4% in October from a year earlier, government data showed on Friday.

That matched a median market forecast and followed a 0.3% increase in September. The CPI figure includes the impact of an increase in the sales tax rate to 10% from 8% that began in October.

The so-called core-core inflation index, which excludes food and energy prices and is similar to the core index used in the United States, rose 0.7% in October from a year earlier.

Prime Minister Shinzo Abe proceeded with a twice-delayed sales tax hike in October as part of efforts to rein in Japan's huge public debt.

While the higher levy does not apply to some grocery and daily necessities, it would have pushed up overall consumer inflation if companies passed on the cost to households.

But the boost from the tax increase may have been offset by discounts that companies offered for their goods to keep the higher burden from scaring away cost-sensitive consumers, some analysts say.

Japan's economy ground to a near standstill in the third quarter with growth at its weakest in a year as the U.S.-China trade war and soft global demand knocked exports, keeping pressure on policymakers to ramp up stimulus to bolster a fragile recovery.

(Reporting by Leika Kihara; Editing by Sam Holmes)