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Free AccessMNI POLICY: Tokyo Oct Core CPI Down on Energy, Accommodation
Tokyo's core inflation rate fell for the third straight month in October, weighed down by weaker prices across the accommodation and energy sectors and also services, including food and beverage.
Bank of Japan officials expect Japan's inflation rate to remain weak for the time being due to the past drop in crude oil prices, and the government's "Go To Travel" campaign.
However, the drop in service prices, including in food and beverage, will likely strengthen BOJ concerns over the prices outlook as solid service prices continued to support the view that businesses are negative about lowering retail prices.
--WEAKER CORE-CORE PRICE
Core inflation in the capital fell 0.5% y/y in October and points to a lower nationwide inflation rate with the core number likely to drop from September's -0.3% when the data is released on Nov. 20.
Core-core CPI, which excludes fresh foods and energy and is the BOJ's key inflation indicator, also fell 0.2% y/y in October, widening from unchanged in September.
Prices for accommodation fell 37.1% y/y in October, widening from a 30.0% fall in September. The negative contribution from this sector widened to 0.59 percentage points from 0.46 pp previously.
Service prices fell 1.0% in October, also widening from a 0.2% fall in September, and prices for food and beverage rose only 0.8%, slowing from +2.8% in September, indicating weaker corporate price-setting.
--CORPORATE PRICE-SETTING WORRY
The weaker service prices are undermining the BOJ view that price cuts which aim to stimulate demand have not been widely observed.
At present though, the BOJ will look through the lower inflation as it focuses on providing liquidity to the banking system to ensure lending gets to the real economy and the financial system remains stable.
Prices for energy items fell 5.6% y/y in October, widening from -3.3% in September, as the negative contribution on the overall number widened to -0.29 percentage points from -0.17 pp.
Downward pressure on Japan's inflation rate will likely strengthen as the drop in energy prices will affect utilities with a lag of a few months.
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