Japan Consumer Prices Fell in February, May Rise After Quake

Japan’s deflation moderated in February even before the country’s worst earthquake on record and an ensuing tsunami and nuclear crisis this month push up energy and food costs.

Consumer prices excluding fresh food declined 0.3 percent from a year earlier, the statistics bureau said today in Tokyo, matching the median estimate of 23 economists surveyed by Bloomberg News.

The March 11 disaster may cause Japan’s gross domestic product to shrink by as much 12 percent on an annualized basis in the second quarter, Morgan Stanley MUFG Securities Co. predicted. The shortage of daily necessities caused by the magnitude-9.0 quake may push up prices, while the weakening economy may dampen consumption and slump price gains, said economist Yoshiki Shinke.

“Price trends are getting harder to predict,” said Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “Even if prices surge temporarily, that won’t prompt the Bank of Japan to tighten policy and its stance will remain accommodative.”

Core consumer prices in Tokyo declined 0.3 percent from a year earlier in March, today’s report showed. The data was collected before the earthquake and doesn’t reflect the impact of the disaster, according to the statistics bureau.

Crippled Plant

The quake and tsunami crippled the Fukushima Dai-Ichi nuclear plant located 220 kilometers (135 miles) north of Tokyo, leading to an electricity shortage around Tokyo. Radiation from the plant, operated by Tokyo Electric Power Co., has also raised concerns over the safety of agricultural products grown in the region.

Following the quake, Barclays Capital analysts Kyohei Morita and Yuichiro Nagai boosted their forecast for third- quarter prices excluding fresh food by 0.2 percentage point to a positive inflation rate of 0.6 percent.

“Electricity charges could rise due to the sharp drop in domestic supply linked to the nuclear power plant accident,” said Morita, chief economist at the brokerage in Tokyo.

Even before the quake, economists including Daiichi Life’s Shinke had predicted core prices would rise in April because of the economy’s recovery and as the effect of the high school tuition waivers, which lowered prices over the past year, wears off.

Core prices will probably fall about 0.3 percent in March and rise 0.6 percent in April, Shinke forecasts.

Japan’s government this week said the damage from the post- war worst disaster could total as much as 25 trillion yen ($309 billion), an amount almost four times the cost of Hurricane Katrina on the U.S.

The central bank has pumped a record amount of funds into the financial system since March 11 to calm markets and soften the economic impact of the earthquake and tsunami. The bank last week also doubled to 10 trillion yen its program to buy assets such as government and corporate debt and real estate investment trusts, providing more monetary stimulus.

To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst at ppanckhurst@bloomberg.net

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