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Consumer prices sank 0.1% in 2012

Kyodo

Consumer prices declined 0.1 percent in 2012, completing a fourth consecutive year of decline and showing the nation remains mired in deflation amid falling durable goods prices.

The core consumer price index, excluding fresh foods, stood at 99.7 against the 2010 base of 100, the Internal Affairs and Communications Ministry said in a preliminary report Friday. In December alone, the core CPI fell 0.2 percent from the previous year to 99.4, the second straight monthly decline.

The data were released after the Bank of Japan agreed to a 2 percent inflation target Tuesday after coming under intense government pressure to take more aggressive action against chronic deflation.

The price index for Tokyo’s 23 wards, which hints at future developments for the country, declined 0.5 percent in January to 98.3, the ministry said.

While last year’s decline was smaller than the 0.3 percent drop in 2011, it will be difficult for prices to turn higher, given the public’s persistent deflationary expectations, said Yuichi Kodama, chief economist at Meiji Yasuda Life Insurance Co.

In a “joint statement” adopted with the government, the BOJ, which decided to implement “open-ended” easing, pledged to “pursue monetary easing and aim to achieve the inflation target at the earliest possible time.”

“It will not be easy to dispel the deflationary expectations rooted in the public,” Kodama said. “Although the BOJ will further strengthen its monetary easing, it will be difficult to overcome deflation just through monetary easing when the country’s economic power is declining.”

In 2012, the index remained in negative territory, due mainly to continued declines in durable goods prices, including refrigerators, which sank 29.4 percent from the previous year, as well as TVs, which fell 4.4 percent.

Among other items, prices for overseas package tours fell 3.4 percent while those for notebook computers shed 16.4 percent.

Rises in energy-related prices helped prevent the index from declining further. Electricity prices rose 5.9 percent, while gas prices gained 4.0 percent.

When including fresh food, the overall index remained unchanged from the previous year, moving out from negative territory for the first time in four years.