Japan Inflation Slows to Zero

Japan’s consumer prices failed to rise in January for the first time in more than a year as households cut spending amid a deepening recession.
TradingEconomics.com, Bloomberg 2/26/2009 8:09:38 PM

Consumer prices excluding fresh food were unchanged from a year earlier after climbing 0.2 percent in December, the statistics bureau said today in Tokyo. The median estimate for 32 economists surveyed by Bloomberg News was for a 0.1 percent decline. Household spending fell 5.9 percent.

A record decline in exports is prompting companies to fire workers and slash wages, depressing spending and prompting policy makers to brace for deflation. Bank of Japan board member Tadao Noda said yesterday the central bank needs to watch how rapid” price declines will influence consumers’ and companies’ inflationary expectations.

Other reports showed industrial production plunged a record 10 percent in January from a month earlier and the ratio of jobs available to each applicant deteriorated the most since 1992, dropping to 0.67 from 0.73. The unemployment rate unexpectedly fell to 4.1 percent from a revised 4.3 percent.

Crude oil’s 70 percent decline from a record in July has exacerbated the drop in consumer prices. Wholesale costs and corporate-service prices both dropped in January. Higher commodities costs drove inflation to a decade high in August.

Inflation in Tokyo unexpectedly accelerated in February, with core prices climbing 0.6 percent from a year earlier after increasing 0.5 percent in January, the bureau said. Economists expected a 0.3 percent increase.

During Japan’s last bout with deflation that began a decade ago, bankruptcies surged and the jobless rate advanced to a postwar high. Weak consumer spending prompted companies to lower prices, eroding profits and forcing them to cut wages. Deflation is commonly defined as a sustained decline in prices.

Consumer prices will fall considerably below 1 percent” in the middle of the year in reaction to the surge in energy and food costs that pushed up the index last year, Noda said yesterday. The pace of declines will moderate after that, he said.

Aeon Co., Japan’s largest supermarket operator, said this week it will lower prices of 1,700 items to spur demand as gloomier job prospects make consumers more reluctant to spend. Nitori Co., a furniture retailer based in Hokkaido, northern Japan, last week said it will cut prices of 300 items including sofas and curtains, its fourth reduction since last year.

Gross domestic product fell at the fastest pace since the 1974 oil shock last quarter as exports collapsed. Bank of Japan Governor Masaaki Shirakawa last week said GDP figures will remain severe” in the first two quarters of this year.

The so-called output gap, a measure of the difference between supply and demand in the economy, fell the most in seven years last quarter. Economists say the gauge, an indicator of deflation, will widen as the recession deepens.

Core prices will probably drop 1.1 percent in the year ending March 2010 and 0.4 percent in the following year, central bank board members forecast last month.

Japan Inflation Slows to Zero