— Central Tokyo Aug Core CPI -1.1% Y/Y Vs July -1.3%, 16th Drop
— Central Tokyo Core CPI Drop Smallest Since -0.7% in May 2009
— Japan CPI Remains Depressed By Lower Tuition, Electronics
— Japan CPI Shows July Energy Costs +3.7% Y/Y Vs June +4.5%

TOKYO (MNI) – Japan’s core consumer prices fell 1.1% from a year
earlier in July, the 17th straight y/y drop, as retail discounts and
subsidies for high school education continued to offset higher energy
costs, the Ministry of Internal Affairs and Communications said Friday.

The pace of decline in the core CPI — excluding fresh food but
including energy — accelerated slightly from -1.0% in June because the
year-on-year rise in energy prices continued to slow to +3.7% in July
from +4.5% in June, reducing the sector’s positive contribution to the
CPI.

It compares with the consensus call of -1.1% y/y for the core CPI.

Continued sharp discounts on durable goods — heaters/air
conditioners, flat-screen TVs and personal computers — contributed to
the price drop, overwhelming a year-over-year rise in gasoline and
heating oil costs.

Core CPI has shown widespread declines in prices of goods and
services as retailers cut prices to lure customers and technological
advancement makes higher quality products available at the same or lower
prices.

High school tuition costs fell 17.4% in July from a year before,
contributing -0.49 percentage point to the year-on-year drop of -0.9%
(vs. -0.7% in June) in the total CPI, exerting the same rate of downward
pressure as in the previous months.

Utility charges still showed a year-on-year drop (although at a
slower space) while overall energy costs posted a 3.7% rise in July,
down from a 4.5% gain in June.

The pace of the year-on-year rise in prices of refined petroleum
products decelerated sharply to +7.8% in July from +12.3% in June.

The y/y rise in gasoline prices was slower at +7.4% in July,
compared with +13.6% in June, while the pace of increase in heating oil
also decelerated to +18.2% in July from +24.1% in the previous month.

The decline in utility charges was lower in July, with electricity
down only 0.3% y/y vs. -2.0% in June and city gas now up 0.6% vs. -4.1%
in the previous month.

The rate of price drops had slowed to -1.3% by December last year
from the record -2.4% pace in August 2009 but deflation did not ease
much through April 2010, when the core reading actually slumped to -1.5%
as the government began providing subsidies for high school tuitions as
part of stimulus measures.

The Bank of Japan has said the dampening effects of high school
tuition cuts on year-on-year CPI changes, which will last for 12 months
from April, should be excluded when gauging the consumer price trend.

The BOJ also said that the year-on-year rate of decline in the core
CPI is expected to slow as the negative output gap — overcapacity vs.
slack demand — continues shrinking gradually. The bank’s board expects
the core CPI to rise 0.1% in fiscal 2011 after two years of declines.

The government expects the CPI to start rising on a year-on-year
basis in fiscal 2011 and it also will seek to achieve an average 1% rise
in prices through fiscal 2020. Unlike some other countries, Japan’s
government and central bank do not set a common inflation target.

On a month-over-month basis, the core national CPI fell 0.3% in
July, led by markdowns in summer clothing, after being unchanged in
June.

Meanwhile, core central Tokyo CPI fell 1.1% year-on-year in August,
posting the 16th straight y/y drop, but the rate of decrease
decelerated from -1.3% in July as city gas charges posted the first y/y
rise in 14 months while electricity costs were up.

The 1.1% drop in August was the smallest y/y decrease in over a
year since -0.7% marked in May 2009.

In the central Tokyo area, the pace of price drops has fluctuated
since the record drop of 2.2% hit in October 2009 but the year-over-year
decline now seems to be shrinking.

Sharp drops in high school tuition continued to lead the decrease
in August while higher costs of overseas holiday tours and smaller drops
in air fares provided positive contributions to the core reading.

Tokyo gasoline and heating oil prices continued to rise from
year-earlier levels, although at a slower pace than in the previous
month. The overall energy cost in the area rose 3.8% y/y in August, up
from +2.0% in July, due to higher utility charges.

Month-on-month, core central Tokyo CPI rose 0.2% in August after
falling 0.3% in July, posting the first m/m gain in three months.

CPI figures date to 1970 under the current 2005 base year.

Other details from the latest data:

National CPI excluding food and energy, or the U.S. style core CPI
(y/y): July -1.5% vs. June -1.5%, the 19th straight on-year drop.

Tokyo CPI excluding food and energy (y/y): August -1.4% vs. July
-1.4%, in negative territory for the 20th straight month.

tokyo@marketnews.com
** Market News International Tokyo Newsroom: 81-3-5403-4833 **

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