Japan prices fall, mild deflation to persist

Tokyo: Japan's core consumer prices fell for the third consecutive month in the year to December, and mild deflation is expected to persist this year as energy prices stabilise and worries about Europe's debt crisis suppress wage growth and economic activity.

Core consumer prices declined an annual 0.1 per cent, matching the median estimate, and a narrower measure that excludes both food and energy also fell in a sign that Japan continues to grapple with a strong yen, which pushes down import prices and makes exporters reluctant to raise salaries.

Retail sales fell 1.2 per cent in 2011, the first fall in two years, and auto and machinery sales posted record falls in the series, which dates back to 1980. But sales rose an annual 2.5 per cent in December, the biggest increase in 16 months.

The Bank of Japan and the government concede that the economy is in a lull, and they could come under increasing pressure to support it as Europe's debt crisis weighs on external demand.

"The stagnation of other developed countries is likely to push back the timing of Japan beating deflation from mid-2010 as originally thought to late 2010," said Takeshi Minami, chief economist at Norinchukin Research Institute.