Consumer price drop eases in January

Tokyo: Japan's consumer prices fell at a slower pace than expected in January, their slide moderated by increases in global energy and food costs.

Consumer prices excluding fresh food declined 0.2 per cent from a year earlier, the statistics bureau said yesterday in Tokyo. That compared with a median 0.3 per cent drop predicted by 28 economists surveyed by Bloomberg News. Price drops eased for a fourth consecutive month to the slowest since April 2009.

"Price gains driven by higher material costs are bad news for the economy and they can't be welcomed as an end to deflation," Yoshiki Shinke, a senior economist at Daiichi Life Research Institute in Tokyo, said before the report. "That likely won't affect the Bank of Japan's pledge" to keep interest rates near zero until general price declines are about to end, he said.

Oil prices have climbed 10 per cent this year amid concern political unrest in the Middle East may disrupt supplies. Food prices are soaring as demand among emerging markets increases and weather changes push up costs.

"Companies that can't absorb all cost increases would have to pass them on to consumers, which in turn may damp spending and weigh on consumer confidence," said Shinke, who expects Japan's core prices may start rising as early as April.

Wheat increases

Japan's Agriculture Ministry last week proposed boosting wheat prices to flour millers by an average 18 per cent in April, according to Takahiro Sasaki, a ruling Democratic Party of Japan lawmaker who had been briefed by the ministry.

That would be the biggest increase since April 2008. Nisshin Seifun Group and Yamazaki Baking raised prices of bread and noodles that year.

There will "still be twists and turns" before Japan can overcome deflation, even if price declines are moderating as the economy improves, Bank of Japan Deputy Governor Hirohide Yamaguchi said this week. He said gains in commodity prices are a major risk for the Japanese economy.