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Japan core consumer prices fall for 1st time in 40 months on oil prices

People have drink at a bar along a street in Tokyo on May 15, 2020. (AP Photo/Eugene Hoshiko)

TOKYO (Kyodo) -- Japan's core consumer prices fell from a year earlier in April, the first decline in 40 months, dragged down by lower oil prices and weak travel demand in the wake of the coronavirus pandemic, with further declines expected in the coming months, government data showed Friday.

    The nationwide core consumer price index, excluding volatile fresh food items, fell 0.2 percent after rising 0.4 percent in March, the Ministry of Internal Affairs and Communications said, a far cry from the Bank of Japan's 2 percent inflation target.

    "Energy prices, which have a big impact on consumer prices, could fall further in the coming months when the effect of oil price falls is mirrored in electricity and gas prices," a ministry official said.

    Analysts are keeping close tabs on whether the price trend will be deflationary going forward, which would hit companies' profits and may add downward pressure on wages.

    The official said it is too early to say whether the latest fall, the first since December 2016, is a sign of deflation.

    "We need to assess the situation carefully. Consumer prices are affected by various factors and are not limited to falls in demand" in personal consumption, he said.

    In the reporting month, the price of kerosene and gasoline fell 9.1 percent and 9.6 percent, respectively, reflecting declines in crude oil prices triggered by concerns about the impact of the pandemic on the global economy.

    Accommodation costs dropped 7.7 percent as inbound tourism was all but wiped out due to border restrictions imposed by the government to curb the spread of the virus.

    Japan received an estimated 2,900 foreign travelers in April, down 99.9 percent from a year earlier, government data showed Wednesday. It was the first time the monthly figure has slipped below 10,000 since 1964, when the government began compiling such statistics.

    Prices of outbound package tours fell 11.7 percent, but this did not reflect the effects of the pandemic, as such trips had been booked around January. Rather, the figure slumped due to comparisons with the previous year's longer-than-usual Golden Week holiday, which had boosted demand.

    Among other items that were affected by coronavirus, prices of flowers fell 1.9 percent as organizers moved to downsize weddings and funerals to reduce the risk of infections.

    Face masks, meanwhile, cost 5.4 percent more and fresh food 11.2 percent - with cabbages sprouting 48.2 percent - as more people stayed home.

    Excluding the impact of a consumption tax hike to 10 percent from 8 percent and a free preschool education and nursery program, both introduced last Oct. 1, consumer prices fell 0.6 percent in April.

    Takeshi Minami, chief economist at the Norinchukin Research Institute, said prices related to services and private consumption reflected the impact of coronavirus in April when a nationwide state of emergency was declared, under which people were asked to refrain from nonessential outings.

    "Due to deterioration in business earnings, the environment surrounding household income is becoming increasingly severe," Minami said.

    "Even if the state of emergency is lifted nationwide, it is unlikely that life would go back to the pre-pandemic situation, so sluggishness in personal consumption is expected to be prolonged."

    So-called core-core consumer prices, which exclude fresh food and energy, rose 0.2 percent from a year earlier, compared with an increase of 0.6 percent in March.

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