Expectations that oil prices will remain depressed for a prolonged period spell good news for consumers with cheaper gasoline and electricity, and for corporations with potentially higher earnings, economists say.

In the short term, sharply lower oil prices could hurt the Abe administration’s efforts to end deflation. But in the long term, the trend will have a positive impact by pushing up prices through higher wages and stronger consumer confidence, they say.

“This is basically a plus for the Japanese economy,” said Hidenobu Tokuda, an economist at the Mizuho Research Institute.

Global oil prices have almost halved in the past six months. West Texas Intermediate dropped below $50 per barrel this month and Brent was trading below $50 as of Monday.

“Japan imported ¥15 trillion of crude oil in fiscal 2013. If the price drops by 40 percent, about ¥6 trillion will stay here, instead of going overseas. It is a plus in terms of the macro economy,” said Hisashi Yamada, chief economist at the Japan Research Institute.

As for that ¥6 trillion, “about 10 to 20 percent will contribute to higher wages, and decreasing prices will support household spending,” Yamada added.

He said corporate profits will benefit most from the falling oil prices, and that where companies invest will depend on the administration’s emerging growth strategy.

Lower oil prices represent good news for electrical utilities saddled with costly idle nuclear reactors and using oil-fired power plants to make up lost capacity. Many are suffering from their oil import bills.

Yamada says there is a problem in goods becoming cheaper, which is it will hurt the administration’s inflation goals. Prime Minister Shinzo Abe is pushing for higher wages and prices to pull the nation out of decades of deflation.

Some sectors are already registering an impact from the price plunge. The Agency for Natural Resources and Energy says gasoline prices have fallen for 24 consecutive weeks.

Japan Airlines Co. and All Nippon Airways Co. have both said they will reduce the fuel surcharge levied on flights to Europe and North America to ¥14,000 in February, from the current ¥21,000.

Tokuda of the Mizuho Research Institute agrees that inflation targets could be hit, but says cheaper oil will benefit the economy in the longer term.

It will “boost consumption, increase companies’ earnings and investment as well as demand and supply,” Tokuda said.

He added that it will eventually have a positive impact on the prices of goods.

Yamada believes it is premature to predict the long-term impact, as cheaper oil will hurt the economies of oil-producing nations — and that adds uncertainty to the broader, global economy.

“Oil revenues move around the world in various ways. If they shrink, it could deal a blow especially to emerging countries. This might eventually trigger a sell-off on global stock markets and have a negative impact for Japan,” he said.

Tokuda said there would be limited fallout for Japan if the economies of oil producers weaken, unless some extreme event occurs, such as a major financial crisis in Russia.

The ruble has been falling and the Russian economy is expected to slow sharply. Tokuda believes a full-blown Russian financial crisis is unlikely, but if one occurs it would have a wide impact, including possibly on Japan’s economy.

KEYWORDS energy, inflation, oil, Deflation