Consumer prices dropped a record 0.5 percent in fiscal 2000 for the second successive year of decline, led by lower prices of fresh vegetables and industrial products, the government said Friday.

The consumer price index for the fiscal year that ended March 31 stood at 101.5 against the 1995 base of 100, the Ministry of Public Management, Home Affairs, Posts and Telecommunications said.

The figures reaffirm the economy is in deflation. Consumer prices also dropped for the second successive year in calendar 2000, registering a 0.7 percent fall, the biggest on a calendar-year basis.

Excluding volatile prices of perishables, the nationwide CPI for fiscal 2000 suffered a 0.4 percent drop in the reporting fiscal year for the third consecutive year of decline, it said. The fall also marked the biggest decline for this category on a fiscal year basis.

Lower-priced phone calls and a half-price campaign by a major hamburger chain contributed to the fall in the CPI, while rent, transportation and education prices moved up in the reporting fiscal year, it said.

“A lack of demand is certainly one of the factors behind the declining prices, so we need to monitor and assess its degree,” Heizo Takenaka, minister for economic and fiscal policy, told reporters.

“We intend to keep our fingers crossed over the effects of the central bank’s latest monetary easing steps.”

The figures are closely followed by the Bank of Japan, which has pledged to boost cash in the money market until the nonperishable CPI hits at least zero. The BOJ forecast the index would fall 0.4 percent to 0.8 percent.

While the need for the BOJ to maintain the policy over a long period is inevitable, many economists believe the government has a difficult task in preventing a deflationary spiral of falling prices and economic contraction while promoting the economic reforms pledged by new Prime Minister Junichiro Koizumi.

Drastic measures such as pressing private banks to clear bad loans from their balance sheets may raise deflationary pressure by increasing bankruptcies and unemployment, they said.

The ministry also released preliminary CPI data for Tokyo’s 23 wards for April, an early gauge of nationwide price trends.

It showed consumer prices in Tokyo fell 0.8 percent in the latest reporting month from a year earlier for the 20th straight month of decline, with the index at 100.3.

Excluding perishable prices, the overall CPI for Tokyo in April slipped 0.9 percent, the 19th straight month that the index has recorded a year-on-year retreat, with the index standing at 100.4.

The ministry attributed the setback in April to a 7.2 percent fall in home durable goods, a 4.8 percent fall in telecom charges and a 1.9 percent drop in rents.

On a month-to-month comparison, consumer prices in Tokyo this month rose 0.3 percent from March, the ministry said.

Commenting on the data, the Cabinet Office said, “Consumer prices remain on a weak trend.”

Nationwide consumer prices in March fell 0.4 percent from a year earlier for the second straight month of decline, with the CPI standing at 101.1.

Excluding perishables, nationwide consumer prices fell 0.6 percent from a year before, down for the 18th month in a row.

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