Japan consumer prices slide for ninth month

Tokyo: 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 per cent from a year earlier after dropping 2.2 per cent in October the statistics bureau said, matching the median estimate of 25 economists surveyed by Bloomberg News.

Bank of Japan (BoJ) policymakers have 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 last week the announcement may influence investors' expectations and lower borrowing costs further, supporting growth.

"The BoJ's price statement is binding the bank's hands and making it harder for them to raise interest rates," said Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset Management.

"Small price gains will probably be insufficient to prompt a rate hike."

Prices stable

The board members said on December 18 they consider prices stable as long as they are in positive territory equal to or below two per cent, with their median view being around one per cent.

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

Shirakawa has reiterated that weak demand will continue to weigh on prices, though he expects the slide in core inflation to slow to about one per cent early next year because oil prices have risen. Crude oil has climbed more than 60 per cent this year.

It is still 48 per cent lower than July 2008, when it reached an unprecedented $147.27.

Wage woes

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

Seiyu, a supermarket operator owned by Wal-Mart Stores, last week cut the price of coats, sweaters, shoes and underwear by as much as 60 per cent to boost sales as consumers tighten their purse strings. Rival Ito Yokado, owned by Seven & I Holdings, has held a cash-back campaign for clothing and household goods.

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 December 14.

"Japanese companies remain unconfident about the strength of demand and they anticipate the income and employment situation will remain severe," said Mari Iwashita, chief market economist at Nikko Cordial Securities in Tokyo.

"They're afraid it's getting more difficult to pass costs onto customers and that could prolong deflation even more."

Core consumer prices in Tokyo slumped 1.9 per cent in December from a year earlier, the 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 one per cent in November from a year earlier.

• 1.7% fall in consumer prices excluding fresh food
• 1.9% decline in core consumer prices in Tokyo
• 60% increase in crude oil prices this year