Japan’s Deflation Deepens

Japan’s consumer prices fell at a record pace in July, adding to signs that deflation will hamper a rebound from the nation’s worst postwar recession.

Consumer prices excluding fresh food declined 2.2 percent from a year earlier after dropping 1.7 percent in the previous month, the statistics bureau said in Tokyo. It was the sharpest decrease since the survey began in 1971.

Japan is once again facing deflation, a sustained bout of falling prices that plagued the economy for a decade until 2005. Stemming the declines and sustaining a recovery will be a challenge for the winner of this weekend’s general election.

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 keep cutting wages, which tumbled an unprecedented 7 percent in June.

Even when excluding food and energy, consumer prices fell 0.9 percent in July, the fastest pace in seven years, the statistics bureau said. Core prices in Tokyo, a harbinger of nationwide price trends, fell 1.9 percent in August.

Crude oil has lost half of its value since peaking at $147.27 a barrel in July 2008. It has rebounded in recent months, climbing 61 percent since the start of this year on expectations that demand for energy will pick up as a global recovery takes hold.

Japan’s Deflation Deepens

TradingEconomics.com, Bloomberg
8/27/2009 11:37:29 PM