Japan Consumer Prices Slide 1.7%

Japan’s consumer prices fell for a ninth month in November, adding to signs that deflation will undermine growth in the world’s second-largest economy.

Prices excluding fresh food slid 1.7 percent from a year earlier after dropping 2.2 percent in October the statistics bureau said.

Bank of Japan policy makers last week said in a statement that they are intolerant of price declines, spurring expectations among investors and analysts they will hold interest rates near zero until inflation returns. Governor Masaaki Shirakawa said this week the announcement may influence investors’ expectations and lower borrowing costs further, supporting growth.

The board members said on Dec. 18 they consider prices stable as long as they are in positive territory equal to or below 2 percent, with their median view being around 1 percent.

Policy makers predicted in October that Japan’s core consumer prices will keep falling through fiscal 2011 even as the economy expands.

Shirakawa reiterated that weak demand will continue to weigh on prices, though he expects the slide in core inflation to slow to about 1 percent early next year because oil prices have risen. Crude oil has climbed more than 60 percent this year. It is still 48 percent lower than July 2008, when it reached an unprecedented $147.27 a barrel.

Falling wages and a worsening job outlook are discouraging spending by households and prompting companies to cut prices to attract customers.

Competition to cut prices and rising energy costs threaten to squeeze profits, which manufacturers projected in a central bank survey would drop by a third in the year ending March 31. They said they expect costs of materials to rise while declines in the price of their products will accelerate, the bank’s Tankan survey showed on Dec. 14.

Core consumer prices in Tokyo slumped 1.9 percent in December from a year earlier, today’s report showed. Figures for the capital are released a month earlier than nationwide data, making them a harbinger of price trends.

Nationwide consumer prices excluding energy and food, which economists say are a better reflection of price trends, fell 1 percent in November from a year earlier.

Japan Consumer Prices Slide 1.7%

TradingEconomics.com, Bloomberg
12/28/2009 12:03:48 PM