By Leika Kihara
TOKYO (Reuters) - Core consumer prices in Japan's capital city Tokyo continued to fall in March though slowed their annual pace of decline for a third consecutive month, indicating that rising fuel cost and a rebound in domestic demand will help Japan avert deflation.
The data may offer relief for the Bank of Japan as it seeks to fire up inflation to its 2% target, though the rising cost of living could weigh on consumption as wage growth stays weak.
The core consumer price index for Tokyo, a leading indicator of nationwide inflation, fell 0.1% in March from the same month a year earlier, government data showed on Friday, less than a median market forecast decline of 0.2%.
That followed a 0.3% fall in February and compared with the steepest recent decline of 0.9% in December, with the data signalling a rebound in oil and commodities costs underpinning prices.
Gasoline prices, for instance, rose 2.1% on year in March after falling 5.2% in February.
Prices of household appliances rose 7.0% in March, up from a 4.0% gain in February, suggesting a pick-up in consumption. Hotel accommodation fees stopped falling in March after sliding 5.1% in February, the data showed.
Japan's economy is widely expected to suffer a contraction in the current quarter as renewed curbs introduced in January to prevent the spread of COVID-19 weighed on consumption.
While the curbs have ended, analysts expect any rebound in the economy to be modest and heavily reliant on overseas demand.