Japan’s key inflation gauge stayed at zero for a second month as the economy continued to reopen amid weak global oil prices and a rise in domestic virus infections that could damp activity going forward.
Consumer prices excluding fresh food were unchanged in July from a year earlier, the ministry of internal affairs reported Friday. Energy continued to weigh on the index, while higher costs for housing and overseas travel packages pushed upward. Economists had forecast an overall gain of 0.1%.
Analysts said they expect inflation to continue to hover around zero for the time being amid weak oil costs, counterbalanced by a feeling among businesses that fearful shoppers are unlikely to respond to discounts amid the pandemic.
- A recent surge in Japan’s virus cases has made people more reluctant to venture out and could undermine the recovery, but businesses may not see price cuts as an effective way to get people back into shops, even if sales are weak.
- The Bank of Japan has also suggested inflation is now less of priority than making sure that credit flows to businesses. The BOJ last month projected consumer prices will fall an average of -0.5% this fiscal year, but governor Haruhiko Kuroda has said repeatedly he still views the risk of Japan falling back into deflation as low at this point.
- “The bank’s policy focus is not prices for now,” said economist Masaki Kuwahara at Nomura Securities. He added that prices are holding up as people buy furniture and computers to spend more time at home and work remotely, while lower oil costs compared with last year will start to push down utility prices in coming months.
- The index was supported in July by higher prices of overseas travel packages, but analysts cautioned it was likely to be misleading because very few people are actually taking trips.
What Bloomberg’s Economist Says
“Looking ahead, we doubt the inflationary pressures will last. New cases of Covid-19 are rising rapidly and renewed efforts to contain the pandemic threaten to damp the recovery momentum.”
–Asia Economist Team
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- The price of overseas travel packages rose 1.3% compared with the prior year, according to the data
- Inflation excluding energy and fresh food rose 0.4%. Analysts projected a 0.5% increase.
- Overall prices increased 0.3%, matching the estimate from economists.
— With assistance by Tomoko Sato, Yoshiaki Nohara, and Yuko Takeo
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