Japan's July core consumer prices fall, COVID clouds outlook
By Leika Kihara and Kantaro Komiya
TOKYO, Aug 20 (Reuters) - Japan's core consumer prices fell 0.2% in July from a year earlier to mark the 12th straight month of declines, data showed on Friday, a sign the hit to demand from the COVID-19 pandemic is keeping the economy under deflationary pressure.
Analysts expect consumer inflation to stagnate in coming months, as Japan's decision on Tuesday to extend state of emergency curbs into mid-September is expected to deal a further blow to already weak household spending.
The drop in the nationwide core consumer price index (CPI), which includes oil but excludes fresh food prices, was smaller than a median market forecast for a 0.4% fall.
The fall was due in part to a change in the base year for the CPI that gives a heavier weighting to mobile charge fees, which have fallen recently as carriers nodded to Prime Minister Yoshihide Suga's calls to cut charges.
"The base-year change dragged down CPI due to falling mobile phone fees," said Takeshi Minami, chief economist at Norinchukin Research Institute.
"But even without the impact of cell phone charges, consumer inflation in Japan is well short of levels seen in the United States and Europe," he said.
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, fell 0.6% in July from a year earlier.
The weak reading contrasts with that of the United States and European countries that have seen sharp rises in inflation on supply constraints and robust demand driven by re-opening of their economies.
The data will likely lead to a cut in the Bank of Japan's inflation forecast at its next quarterly review due in October.
In present projections made in July that do not take into account the base year change, the BOJ expects core consumer prices to rise 0.6% in the current fiscal year ending in March 2022.
Japan's economy rebounded more than expected in the second quarter after slumping in the first three months of this year, a sign consumption and capital expenditure were recovering from the coronavirus pandemic's initial hit.
But many analysts expect growth to remain modest in the current quarter as curbs reimposed to combat a spike in infections weigh on household spending. (Reporting by Leika Kihara; Editing by Sam Holmes)
