Japan’s Inflation Slows

Japan’s consumer inflation slowed for a fourth month in December as oil prices tumbled and the nation’s recession intensified.
TradingEconomics.com, Bloomberg 1/29/2009 5:55:12 PM

Consumer prices excluding fresh food rose 0.2 percent from a year earlier, slower than the 1 percent pace in November, the statistics bureau said today in Tokyo. The result was lower than the 0.3 percent median estimate of 35 economists surveyed.

Bank of Japan policy makers last week forecast the sharpest economic contraction in the postwar era and a two-year bout of price declines as the global recession weakens exports and cuts in jobs and wages discourage consumption. Meiji Dairies Corp. and Seiyu Ltd. this month announced plans to lower prices in a bid to spur demand as consumers pare spending.

Gross domestic product will shrink 1.8 percent in the year ending March 31 and 2 percent next year, central bank board members predict. Both projections would exceed a 1.5 percent decline in the year ended March 1999, the worst since 1945.

Consumer prices excluding fresh food will fall 1.1 percent in the year starting April 1, which would be the biggest drop in more than 30 years, and 0.4 percent the following year, board members said.

The so-called output gap, a measure of the balance between supply and demand in the economy, fell 1.1 percent in the three months ended September, the second quarterly decline. Economists say the gap, an indicator of deflation, will widen as the recession deepens.

Still, Bank of Japan Deputy Governor Kiyohiko Nishimura yesterday indicated he’s not concerned that the recession will trigger a return of sustained price declines that plagued the economy for a decade until 2005.

Manufacturers are firing workers and reducing wages as the global economic slowdown spurs a record drop in exports. Consumers became the most pessimistic in at least 26 years in December, a government report showed last week, a sign that households will keep cutting spending.

Japanese companies, which raced to pass on higher fuel and material costs to customers early last year, are now reversing course and offering discounts.

Meiji Dairies this week said it will cut prices of cheese and other dairy products by as much as 10 percent in March. The reduction will be the first in almost three decades for the company, which has raised prices three times since 2006 to offset rising grains and petroleum costs.

Seiyu, the local unit of Wal-Mart Stores Inc., last week said it will lower prices of about 1,400 items including electric appliances and kitchen equipment to promote sales as a stronger yen and falling material prices reduce costs.

Recent reports also show inflation is fading. Wholesale price gains slowed for a fourth month in December and costs companies pay for services slid at the fastest pace in seven years.

Japan’s Inflation Slows