Prices excluding fresh food declined 1.7 percent from a year earlier after sliding 1.1 percent in May, the statistics bureau said today in Tokyo.
Bank of Japan board members say price declines will probably accelerate in coming months, signaling the central bank will maintain its extraordinary policy of keeping interest rates near zero. Deputy Governor Hirohide Yamaguchi said last week that it will take time before inflation returns to the zero-to-2 percent range policy makers consider to be stable.
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 12 months. Japan only escaped from a decade of deflation in 2005.
Bank of Japan board members predict core prices will tumble in the year ending March 2010 and the following 12 months. Even so, Deputy Governor Yamaguchi said last week that the risk of a deflationary spiral is low and there is no need for the bank to implement additional policy-easing measures now.
The drop in core prices will probably accelerate through the third quarter and exceed 2 percent in reaction to last year’s record increases in oil, board member Tadao Noda said yesterday. Declines will moderate after that as the economy improves, he added.
Both wholesale prices and costs of corporate services fell at a record pace in June because of cheaper oil and weakening demand. Crude has lost about half of its value since peaking at $147.27 a barrel in July. Wheat, soybeans and corn costs have dropped since climbing to records last year.
Supermarkets are cutting prices to attract cash-strapped consumers. Aeon Co., Japan’s second-largest retailer, last week started selling house-brand beer jointly developed with Suntory Holdings Ltd. at 20 percent cheaper than the equivalent products of major breweries. Larger rival Seven & I Holdings Co. also began selling house-label beer.