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Japan's consumer prices extend falls, cellphone bill cuts to weigh ahead

Leika Kihara
·2-min read
FILE PHOTO: Shopper looks at items at a supermarket in Tokyo

By Leika Kihara

TOKYO (Reuters) - Japan's core consumer prices fell for the eighth straight month in March and analysts expect further drops ahead due to the drag from cellphone fee cuts, keeping 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 Sunday 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 prices, slid 0.1% in March from a year earlier, government data showed on Friday, matching a median market forecast.

The pace of decline slowed from 0.4% in February due mostly to a rebound in gasoline costs, as hopes of a strong global economic recovery pushed up crude oil prices in recent months.

"Inflation continued to rebound in March mainly due to a further pickup in energy inflation," said Tom Learmouth, an economist 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 cuts by major carriers that will be incorporated into the data from April, analysts say.

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

While the government does not disclose how much the cellphone fee cuts could affect CPI, analysts expect them to push down the core index by up to 0.6% points.

The 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 drop in fees 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 COVID-19 pandemic. But activity is expected to have contracted against in January-March and may rebound only modestly in the current quarter as fresh emergency curbs hurt consumption.

(Reporting by Leika Kihara; Editing by Kim Coghill and Sam Holmes)