Prices excluding fresh food slid 1.1 percent from a year earlier after dropping 0.1 percent in the preceding two months, the statistics bureau said today in Tokyo. It was the sharpest decrease since comparable figures were first compiled in 1971.
Bank of Japan Governor Masaaki Shirakawa said last week that price declines will accelerate through the middle of the fiscal year as demand slackens and crude oil continues to trade lower than last year’s record. Retailers including Aeon Co. are cutting prices to attract customers as falling wages and the worsening job outlook damp spending.
Worldwide inflation is easing as energy costs retreat and the worst global recession since the Great Depression forces companies to charge less. Consumer prices failed to rise in the euro area for the first time in at least a decade in May, and in the U.S. they fell 1.3 percent, the most since 1950.
Consumers, whose spending accounts for more than half of the economy, may delay purchases if they expect goods to get cheaper. That would erode profits and force companies to cut wages, which have already slid for 11 months. Japan only escaped from a decade of deflation in 2005.
The Organization for Economic Cooperation and Development this week urged the Bank of Japan to keep pumping cash into the economy until underlying inflation is firmly positive.” Since it cut the key interest rate to 0.1 percent in December, the central bank has been buying corporate debt and increased government bond purchases from lenders to revive growth.
Even when excluding food and energy, consumer prices fell 0.5 percent in May, the fastest pace in 22 months, the statistics bureau said. Core prices in Tokyo, a harbinger of nationwide price trends, fell 0.7 percent in June from a year earlier, the biggest drop in six years.
Core prices, the central bank’s key gauge of inflation, will slide 1.5 percent this fiscal year and 1 percent in the next, Governor Shirakawa and his board forecast in April.
Wholesale prices fell at the fastest pace in 22 years in May and corporate-service prices slid a record 3 percent.