Japan Inflation Rises at Slowest Pace in Seven Months
Japan’s inflation rose at the slowest pace in seven months in November as oil and commodity costs tumbled and the deepening recession weakened demand.
Consumer prices excluding fresh food rose 1 percent from a year earlier, less than 1.9 percent in October, the statistics bureau said today in Tokyo. The median estimate of 36 economists surveyed by Bloomberg News was for 1.1 percent.
Costs of fuel and commodities, which drove inflation to a decade high last quarter, are plunging amid a global slowdown. A deepening recession at home is also eroding demand, increasing the risk the world’s second-largest economy may slip into deflation next year, analysts say.
“Japan’s economy probably won’t grow for a while and that will continue to damp overall consumption, while crude oil prices are dropping at an unexpected pace,” said Mamoru Yamazaki, an international strategist at RBS Securities Japan Ltd. in Tokyo. “Japan’s prices are coming under mounting downward pressure.”
The yen traded at 90.45 per dollar at 8:36 a.m. in Tokyo from 90.46 before the report was published. Separate reports today showed the unemployment rate rose to 3.9 percent from 3.7 percent, job vacancies declined and households cut spending for a ninth month.
Crude oil has lost more than 70 percent its value since exceeding $147 a barrel for the first time on July 11. The yen’s 19 percent surge against the dollar since September is also making imports cheaper.
Slash Prices
Japanese retailers are competing to slash prices to lure cash-stripped consumers, who are pulling their purse strings as wage and job prospects deteriorate.
Seiyu Ltd., the local unit of Wal-Mart Stores Inc., this month announced a campaign to offer the lowest prices on grocery and household items. Aeon Co., Japan’s largest supermarket operator, this week cut prices of about 100 items, including toilet paper and cooking oil, by taking advantage of the yen’s strength payday loans.
Other reports also show inflation is fading. Wholesale price gains slowed for a third month in November and costs companies pay for services slid for a second month. Bank of Japan Governor Masaaki Shirakawa said this week inflation will moderate in coming months.
“We expect the headline CPI to fall over 2 percent year- on-year in summer 2009,” said Takuji Okubo, a senior economist at Merrill Lynch & Co. in Tokyo. “As the recession prolongs and deflation deepens into 2009, we think the BOJ needs to take a more innovative and radical policy.”
Pump Cash
The central bank lowered the overnight lending rate on Dec. 19 to 0.1 percent and offered to buy commercial paper and more government bonds to pump cash into the economy. The bank has pledged to explore other measures to ease the credit shortage and counter the deepening global recession.
The so-called output gap, a measure of the balance between supply and demand in the economy, fell 1.1 percent in the three months ended September, a second quarter of contraction. Economists say the gap, an indicator of deflation, will widen next year as the recession deepens.
A “widening output gap and falling asset prices could operate to deepen the deflation of general prices,” said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo.
Consumer prices excluding food and energy were unchanged in November. Core prices in Tokyo, where one in 10 Japanese lives, rose 0.8 percent in December from a year earlier, after climbing 1.1 percent in November, today’s report showed. Price trends in the capital tend to indicate future changes in nationwide inflation.