Japan’s core CPI likely dropped into negative territory again in March, to remain negative until summer

Japan’s consumer price index, excluding fresh food, for March is expected to have dropped by 0.2% y/y, following February’s 0.0% y/y, according to Societe Generale. Factors including passing on of price rises to products, which is due to cost-push inflation resulting from yen’s previous decline and wage hikes are definitely trying to accelerate inflation. Core CPI is expected to stay at about 0% because of low oil prices. But excluding energy and food, CPI is expected to have accelerated 0.7% y/y last month, noted Societe Generale.

Core CPI, striping fresh food, is expected to be in negative territory until the summer. If oil prices continue to rebound, the core CPI, excluding fresh food is expected to recover around 0.5% y/y by the start of 2017, added Societe Generale. Meanwhile, the core CPI, stripping energy and food has been solid, underpinning the central bank’s stance that inflation is strong. But, excess demand has barely grown in the past few years.

“There is a risk that this core CPI (excluding food and energy) may have reached its peak in February (0.8% yoy) and gradually fall to around 0.4%yoy by autumn”, noted Societe Generale.

Tokyo CPI, stripping fresh food is likely to continue falling in April by 0.1%. Prices face risks on the downside from soft demand and declining oil prices. Inflation is unlikely to reach the Bank of Japan’s price stability target of 2% in the timeframe. The central bank is expected to revise its FY 2016 inflation outlook during its monetary policy meeting in April, according to Societe Generale.