MNI POLICY: Japan Feb CPI Drop Slows On Energy Falls

The fall in Japan's core consumer price index slowed in February as negative contributions from energy items narrowed from January, and this was no surprise to Bank of Japan officials who were expecting an easing in the drop in crude oil price to ease, MNI understands.

Bank officials maintain the view that the inflation rate is expected to remain in negative territory for the time being, and downward pressure on prices will increase if the government resumes the "Go To" travel campaign after the state of emergency is lifted.

The nationwide core CPI fell 0.4% y/y in February for the seventh straight month after -0.6% in January. The smaller drop was expected as the Tokyo February CPI, a leading indicator of nationwide CPI, slowed to -0.3% from -0.5% in January.

Prices for energy items fell 7.2% y/y in February, slowing from -8.6% in January.

CORE-CORE CPI RISES

January core-core CPI, excluding fresh food and energy items - the BOJ's preferred gauge of the underlying trend – rose 0.2% y/y in February after rising 0.1% in January.

Overall accommodation prices fell 5.1% y/y in February, widening from -2.1% in January. The negative contribution from accommodation widened to -0.06 percentage points from -0.02 pp in January.

SERVICES AND EATING OUT SOLID

Service prices rose 0.1% y/y in February after being unchanged in January.

Prices for eating out, another key BOJ focus, rose 0.3% y/y in February, unchanged from +0.3% in January.

Prices for processed foods, accounting for 15% of the total CPI on which BOJ officials focus and which are sensitive to the economic climate, remained weak, down 0.1% in February, slowing from a 0.2% fall in January.