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Japan’s core consumer prices narrow annual pace of falls

CPI

The decline was due in part to a change in the base year for the CPI that gives a heavier weighting to mobile charge fees, which tumbled a record 39.6% in July

Japan’s core consumer prices narrowed their annual pace of falls for three consecutive months in July, a sign global commodities inflation was offsetting some of the deflationary pressure from a pandemic-induced spending slump.

But analysts expect consumer inflation to stay well below levels seen in the US and Europe, as Japan’s decision on Tuesday to extend state of emergency curbs into mid-September is seen dealing a blow to already weak household spending.

Cost-push inflation is driving up goods prices, while service prices remain weak due to the pandemic’s impact, said Toru Suehiro, an economist at Daiwa Securities.  Given the increase in Delta variant cases, this trend will continue for the time being.

Japan’s core consumer price index (CPI), which includes oil but excludes fresh food prices, dropped 0.2% in July from a year earlier, declining for the twelfth month in a row, government data showed on Friday.

The decline was due in part to a change in the base year for the CPI that gives a heavier weighting to mobile charge fees, which tumbled a record 39.6% in July.

But the decline was smaller than market forecasts for a 0.4% drop and a 0.5% decrease in June due to the boost from rising food and fuel costs, including a 19.6% spike in gasoline bills.

But the pent-up demand is still too weak for companies to pass on rising costs to households as aggressively as their counterparts in western economies, analysts say.

The drop in Japan’s consumer prices contrasts sharply with moves in wholesale prices, which spiked 5.6% in July to mark the fastest annual rise in 13 years.

The core-core consumer price index, which strips away not just fresh food but energy costs, dropped 0.6% in July from a year earlier.

The data may lead to a cut in the Bank of Japan’s (BOJ) inflation forecast at its next quarterly review due in October, as its current projections do not take into account of the base-year effect, some analysts say.

In present projections made in July, the BOJ expects core consumer prices to increase 0.6% in the year ending in March 2022.

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