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Japan December core consumer prices fall at slowest pace in nearly a year

Japan December core consumer prices fall at slowest pace in nearly a year
January 27, 2017
TOKYO - Japan's core consumer prices fell at the slowest annual pace in nearly a year in December, a sign that inflation should pick up in coming months on a rebound in oil costs and rising import costs from a weak yen. The data, released on Friday, will be among factors the Bank of Japan will scrutinise at a policy meeting early next week, where it is widely expected to keep monetary policy steady and maintain its upbeat inflation projections. While prospects of accelerating inflation offer some relief for the BOJ, many central bankers remain wary on whether price rises driven by external factors could help speed up inflation to their ambitious 2 percent target. "Consumer prices will start rising ahead. But for inflation to approach 2 percent, companies must more actively distribute profits" to households through wage hikes, said Takeshi Minami, chief economist at Norinchukin Research Institute. Core consumer prices, which include oil products but excludes volatile fresh food prices, slipped 0.2 percent in December from a year earlier, government data showed, roughly in line with a median market forecast for a 0.3 percent fall. It was the 10th straight month of declines but the smallest fall since February, when there was a flat reading, as gasoline and fuel costs rebounded from last year's lows. Core consumer prices in Tokyo, considered a leading indicator of nationwide trends, also fell less sharply. In January, they declined 0.3 percent from a year earlier, compared with 0.6 percent in December, the biggest annual drop in nearly four years. GROWTH PICK-UP AHEAD? Japan posted a third straight quarter of annual expansion in July-September and analysts expect growth to pick up in coming quarters, thanks to a recent rise in exports and factory output driven by improvements in emerging economies. Policymakers hope that prospects of a sustained recovery will prompt companies to boost wages and household spending, seen as a soft spot in the world's third-largest economy. Many analysts expect core consumer prices to turn positive in coming months and head toward 1 percent later this year. But some warn that global uncertainties, such as U.S. President Donald Trump's protectionist streak, may make big manufacturers cautious of raising wages for fear of declining profits. Overall consumer prices rose 0.3 percent in December from a year earlier, as downward pressure from energy costs dissipated. But prices of durable goods, such as television sets and personal computers, continued to fall, a sign consumption remains too weak for retailers to hike prices. The BOJ had blamed slumping oil prices as among factors that hampered achievement of its 2 percent target and argued a steady rise in household income will gradually push up inflation. In an attempt to better gauge Japan's broad price trend, the government said it will begin releasing a new index on consumer prices that excludes the effect of volatile fresh food and energy costs. -Reuters