MNI POLICY: Tokyo Feb Core CPI Drop Slows on Energy Price

Tokyo's core inflation rate fell for the seventh straight month in February but the pace of decline slowed in the wake of smaller fall in energy items and higher prices for household durable goods.

Tokyo's core CPI continued to be weighed down by weak energy prices but the negative contribution from energy items narrowed to -0.51 percentage point in February from -0.58 pp in January.

Core inflation in the capital fell 0.3% y/y in February and points to a higher nationwide inflation rate with the core number likely to rise from January's -0.6%, with data released on March 19.

The February data was within the Bank of Japan's forecast that the inflation rate is expected to be negative for the time being, affected by the Covid-19 disruptions and the past drop in crude oil prices.

But central bank officials expect downward pressure on inflation rate to increase if the government resumes the Go To Travel campaign.

Prices for accommodation fell 5.1% y/y in February, widening from a 2.1% fall in January.

Bank officials maintained the view that the core CPI excluding special factors remained firm, compared with a big negative output gap (-4.83 percentage points in Q2), as retail price cuts have not expanded.

However, the BOJ continues to pay attention to how the prolonged weak inflation rate will lower medium to long-term inflation and growth expectations, and cause corporate retail price cuts.

CORE-CORE CPI RISES

Core-core CPI, which excludes fresh foods and energy and is the BOJ's key inflation indicator, rose 0.2% y/y in February for the second straight rise following +0.2% in January.

Processed food prices, which account for 15% of the total CPI that BOJ officials are focused on, fell 0.2% y/y in February, narrowing from -0.4% in January.

Service prices rose 0.1% in February, unchanged from a 0.1% rise in January, but prices for eating and drinking were unchanged y/y in February after rising +0.1% in January.