RTTNews - Japan's consumer prices dropped sharply in May compared to the year-ago period, mainly due to lower prices for utilities, transport and communication, official data showed Friday.

Data released by the Ministry of Internal Affairs and Communications said consumer prices fell 1.1% year-on-year in May, coming in line with economists' estimate, after a 0.1% drop in the previous month. Consumer prices declined for the fourth consecutive month in May.

Core consumer prices, which exclude food prices also fell 1.1% in May, representing a record drop. Economists had estimated a 1% fall in core consumer prices.

Most of the subgroups showed a fall in prices, with the steepest being a 5.6% drop in transport and communication prices. This was followed by 3% fall in price of utilities. At the same time, price of food rose 1%.

On a monthly basis, consumer prices fell 0.2% in May.

For the Tokyo Metropolitan area, consumer prices for June declined 1.5% annually, while the core consumer prices were down 1.3%.

Earlier in the month, the central bank in its 'Monthly Report on Economic and Financial Developments' for June said the year-on-year change in consumer prices was likely to become negative, owing to falling prices of petroleum products and the stabilization of food prices, as also due to increasing slackness in supply and demand conditions in the economy.

Further, the central bank also expects the domestic corporate goods prices to continue decreasing gradually for the time being.

At the same time, the central bank raised its economic assessment of Japan for the second straight month. The Bank of Japan said the economic conditions, after deteriorating significantly, have begun to stop worsening. In the coming months, Japan's economy is likely to show clearer evidence of leveling out over time, it said.

The central bank said exports and production have improved recently after substantial decreases. However, business fixed investment has declined substantially, reflecting the significant deterioration in corporate profits. Private consumption and housing investment also weakened as the employment and income situation has become increasingly severe.

Moreover, while financial conditions remained generally tight, there have been signs of improvement, the bank said. The Bank of Japan in its latest Monetary Policy Meeting retained retained its uncollateralized overnight call rate at 0.1%.

Meanwhile, in a report released Wednesday, the Organization for Economic Co-operation and Development upgraded the economic outlook for its 30 member countries. The Paris-based group said the slowdown in these economies is reaching its bottom, but recovery is likely to be weak and fragile.

The OECD forecasts that Japan's economy will contract by 6.8% this year, but it is expected to expand by 0.7% next year. OECD also sees slow recovery in Japan and said deflation would possibly become further entrenched.

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