By Leika Kihara
TOKYO (Reuters) – Japan’s core consumer prices were unchanged in January from a year earlier, suggesting that persistent falls in energy costs will keep inflation well below the central bank’s 2 percent target.
While falling fuel costs may be a boon for corporate profits, low energy prices suppress inflation which in turn may discourage companies from raising wages or the prices of their goods.
The data underscores the challenges the Bank of Japan faces, even after its shock decision last month to adopt negative interest rates, in generating a positive cycle in which rising corporate profits drive up wages and consumption.
The flat growth in the core consumer price index (CPI), which includes oil products but excludes volatile fresh food prices, matched a median market forecast, data from the Internal Affairs Ministry showed on Friday.
Core consumer prices in Tokyo, which is a leading indicator of nationwide price trends, fell 0.1 percent in the year to February, the data showed.
The BOJ last month adopted negative rates to supplement its massive asset-buying programme, a move aimed at preventing volatile financial markets and a yen spike from hurting business confidence and delaying a sustained end to deflation.
The central bank now expects inflation to hit 2 percent around the first half of fiscal 2017, a projection many analysts say is too optimistic as weak consumer spending and slumping oil costs continue to weigh on price growth.
(Reporting by Leika Kihara; Editing by Eric Meijer)
