• Kyodo News


Wholesale prices fell by a record 5.3 percent in 2009, the largest drop since comparable data became available in 1961, the Bank of Japan said Thursday.

The results of the preliminary report underscore how falling energy costs and sluggish demand have solidified deflation’s effect on the economy during the global economic slump.

The BOJ’s corporate goods price index stood at 103.0 against the 2005 base of 100, marking its first fall in six years. The 5.3 percent drop is a sharp reversal from the 4.6 percent rise logged in 2008. The previous record was set in 1986, when prices plunged 4.7 percent on lower oil prices and the yen’s sharp jump against the dollar following the 1985 Plaza Accord on foreign-exchange rates.

Naokazu Koshimizu, economist at Nomura Securities Co., said the report shows deflation is dragging down the economy despite signs of improvement.

“Although the economy is picking up, production has yet to fully recover and companies still have excesses in supply capacity and employment,” he said. “Unless they correct the excessiveness or consumer demand grows sharply, deflationary pressure should continue.”

The government reported deflation’s return in November.

Contributing the most to price falls in 2009 was oil prices, which plunged after climbing crazily the previous year. Prices were also cut over a wide range of products, such as steel and other raw materials, as companies reduced production and capital investment to cope with sluggish demand amid a global credit crunch.

Oil and coal prices plunged 33.9 percent, in contrast with the 22.8 percent jump the previous year. Prices of nonferrous metal products fell 22.4 percent, chemical products fell 9.3 percent. Prices of electronics components and information and communication devices also declined.

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