Japan inflation rate slowed to 0.6% in February as virus shock spread

Japan’s inflation rate slowed down to 0.6 percent in February from a year earlier, reflecting decreases in crude oil prices and concerns over global economic growth due to the outbreak of the new coronavirus that causes COVID-19, government data showed Thursday.

The nationwide core consumer price index, excluding volatile fresh food items, marked the 38th straight monthly increase, the Ministry of Internal Affairs and Communications said, but remained far below the Bank of Japan’s 2 percent inflation target. It had risen 0.8 percent in January.

Overall energy prices dipped 0.2 percent as gasoline prices saw slower increases due to the economic impact of the COVID-19 pandemic while reductions in electricity and gas prices expanded.

This reflects declines in crude oil prices seen around September to November last year when trade frictions between the United States and China escalated.

Gasoline prices increased 4.8 percent, but the growth was smaller than 6.3 percent in January.

“Electricity and gas prices did not reflect the recent oil price falls, which will be reflected several months later,” a ministry official said. “So energy prices could fall further in the coming months when the effect kicks in.”

An increase in restaurant menu prices, as well as in prices for sweets and other food products, contributed to the overall increase.

Menu prices at sushi and other restaurants rose 3.1 percent year on year, reflecting higher costs for ingredients and labor.

Prices of overseas package tours fell 9.6 percent from a year earlier, with travel to other areas in Asia especially impacted due to deteriorating ties between Japan and South Korea and the political turmoil in Hong Kong, the official said, adding that the prices had been set before the virus outbreak began.

Accommodation fees in Japan dropped 3.1 percent after a steep decline in Chinese tourists to the country, with Beijing banning outbound group travel in late January to curb the spread of the virus, the official said.

The ministry maintained the view that inflation has been moderately rising in Japan.

While the contribution to the index is small, the prices of face masks spiked 3.7 percent from the previous year in February, with stocks of the items reduced due to high consumer demand amid the virus crisis.

Excluding the impact of a consumption tax hike from 8 percent to 10 percent and a free preschool education and nursery program both introduced on Oct. 1, prices gained 0.2 percent from a year earlier — down from 0.4 percent in January.

So-called core-core consumer prices, which exclude both fresh food and energy items, rose 0.6 percent in February from the previous year, down from a 0.8 percent gain in January.