By Leika Kihara
TOKYO (Reuters) - Japan's core consumer prices rose 0.5 percent in July from a year earlier to mark a seventh straight gaining month, a sign the economy is making slow but steady progress toward meeting the central bank's 2 percent inflation target.
But the increase was still largely driven by higher fuel bills as subdued wage growth discouraged consumers from increasing their spending, underscoring the challenge the Bank of Japan faces in achieving its ambitious price goal.
The rise in the nationwide core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, matched a median market forecast and followed a 0.4 percent gain in June.
Core consumer prices in Tokyo, available a month before the nationwide data, were up 0.4 percent in August from a year earlier, against a 0.3 percent gain projected in a Reuters poll.
Japan's economy expanded at the fastest pace in more than two years in the second quarter as consumer and company spending picked up.
But price and wage growth remain stubbornly weak with firms still wary of passing more of their profits to employees, raising doubts over whether the second-quarter's bounce can be sustained.
The BOJ has had to push back the timing for reaching its price target six times since it deployed a massive stimulus program in 2013.
It now expects inflation to hit 2 percent in the fiscal year ending in March 2020, arguing that a tightening job market and solid economic growth will gradually push up prices.