Core CPI in Japan extends 7-month slide

TOKYO • Japan's core consumer prices last month fell for the eighth straight month and analysts expect further drops ahead due to a drag from cuts in cellphone fees. This will put the central bank under pressure to maintain its massive stimulus to fire up inflation.

A spike in new Covid-19 infections and the government's plan to declare a third state of emergency from tomorrow may also weigh on inflation by hitting already weak consumption, boding ill for a fragile economic recovery.

The nationwide core consumer price index (CPI), which includes oil products but excludes volatile fresh food costs, slid 0.1 per cent last month from a year earlier, government data showed yesterday, matching a median market forecast.

The pace of decline slowed from 0.4 per cent in February due mostly to a rebound in petrol prices, as hopes of a strong economic turnaround worldwide pushed up crude oil costs in recent months.

"Inflation continued to rebound in March mainly due to a further pickup in energy inflation," said economist Tom Learmouth at Capital Economics.

"We think underlying inflation will rise a bit further once the fourth wave of infections is brought under control as vaccines allow some pent-up demand to be released."

While the base effect of last year's plunge in energy costs may underpin CPI, that may be more than offset by cellphone fee reductions by major carriers that will be incorporated into the data from this month, analysts said.

Cellphone charges will be particularly cheaper for plans that accept applications only online, a development which is also expected to be incorporated into CPI data from this month, a government official told a briefing.

While the government did not disclose how much the lower cellphone fees could affect CPI, analysts expect them to push down the core index by up to 0.6 per cent point.

The Bank of Japan (BOJ) is expected to cut its inflation forecasts when it issues fresh quarterly projections at next week's rate review, partly reflecting the expected fee cuts.

While the latter would give households more purchasing power, the weakness in underlying inflation may hamper the BOJ's efforts to shift public perceptions that prices will keep falling, and coax consumers into spending now rather than save.

Japan's economy has been slowly recovering from last year's severe slump triggered by the pandemic. But activity is expected to have contracted again in January-March and may rebound only modestly in the current quarter as fresh emergency curbs hurt consumption.

REUTERS