(Bloomberg) -- Japan's inflation dropped for a 12th month in July, extending the longest losing streak in a decade after data revisions showed weakness during the pandemic was worse than previously reported.
Consumer prices, excluding those for fresh food, declined 0.2% from a year earlier, the ministry of internal affairs said Friday in its first report since rejigging its consumer price basket earlier this month.
The result was better than a forecast 0.4% fall as rising energy and hotel prices cushioned the impact of mobile phone rates that have fallen sharply under pressure from Prime Minister Yoshihide Suga.
Still, the revised index showed Japanese inflation in negative territory for the longest stretch since a 28-month slump that ended in June 2011. Prices were weak before the change, but the new figures sharpen the contrast between the challenges the Bank of Japan faces on inflation and those central banks elsewhere are contending with.
Government's New Math Shows Japan Inflation Back Below Zero
Key Insights
- “There's great uncertainty due to the pandemic, so the BOJ doesn't have a choice but to monitor the situation within its current policy framework,” said economist Nobuyasu Atago at Ichiyoshi Securities Co. He sees price momentum gaining traction in the fiscal year starting in April, once the impact of the pandemic and lower phone rates disappear.
- Other economists including Koya Miyamae at SMBC Nikko Securities Inc. said core inflation could turn positive as soon as this month, boosted by rising accommodation prices in comparison with last year when government travel discounts went into effect.
- Bigger picture, the BOJ doesn't see Japanese inflation reaching its 2% target anytime before 2024. As a result, the bank is trapped into easing for the foreseeable future, even as the Federal Reserve and other central banks move toward tapering.
- Despite surging producer prices, most of the country's firms aren't choosing to pass those costs on to customers. Notable exceptions include Yamazaki Baking and dairy company Megmilk Snow Brand, which hiked prices in recent weeks due to higher costs of raw materials from oil to sugar.
What Bloomberg Economics Says...
“The smaller-than-expected drop in Japan's consumer prices in July -- and slower decline relative to revised June readings -- are marginally positive for the inflation outlook but on close inspection mostly reflect temporary factors... Downward pressure on demand from virus-containment measures will probably limit any acceleration in inflation in coming months.”
--Yuki Masujima, economist
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- Overall inflation was down 0.3% from a year earlier, compared with a forecast 0.4% drop.
- Energy added 0.4 percentage point to the index, while falling mobile phone rates cut 1.1 percentage point.
- Excluding both fresh food and energy, the cost of living fell 0.6% after sinking 0.9% in the previous month.
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