Consumer prices fell for a 12th month in February, adding pressure on the central bank to eradicate deflation that is hampering the economic recovery.
Prices excluding fresh food slid 1.2 percent from a year earlier, after dropping 1.3 percent in each of the preceding two months, the Internal Affairs and Communications Ministry said Friday. The result matched the median estimate of 22 economists surveyed.
Finance Minister Naoto Kan said the report shows more efforts are needed to overcome deflation even as price declines ease. The Bank of Japan last week doubled a credit program for commercial lenders to ¥20 trillion, a move Gov. Masaaki Shirakawa said is aimed at lowering borrowing costs further to spur growth and prices.
“An end to deflation isn’t in sight anytime soon, though the pace of price declines will moderate gradually,” Azusa Kato, an economist at BNP Paribas in Tokyo, said before the report. “The BOJ will probably decide policy direction not only based on price data but also the government’s moves.”
Deflation isn’t becoming more widespread, Friday’s report showed. The number of items in the consumer price index that became cheaper in February declined for the first time in 16 months, the report showed. Prices of 335 goods fell, compared with 342 in January.
Core price declines have moderated since peaking at 2.4 percent last August, largely because of costlier crude oil.
“While the declines are becoming smaller, they’re continuing,” said Kan, who has led government calls for the central bank to help spur prices. “More efforts are needed to beat deflation.”
BOJ Policy Board member Hidetoshi Kamezaki said Thursday that it’s “difficult to expect a turnaround of consumer-price declines anytime soon” because people’s expectations for deflation are growing, making it harder for firms to raise prices.
Fast Retailing Co., operator of the clothing chain Uniqlo, said last week it started to sell sports clothes priced between ¥390 and ¥1,990. Seiyu Ltd., a supermarket chain owned by U.S.-based Wal-Mart Stores Inc., this month sold women’s business suits for ¥3,800, while rival Aeon Co. offered men’s suits for ¥7,800 in a 10-day campaign.
The economic recovery, fueled by exports and industrial output, has yet to lift wages, which have fallen for 20 consecutive months through January.
“With incomes still severe, consumers continue to pull their purse strings tight and trim expenditures, while companies are pursuing the marketing strategy of lowering prices,” said Mari Iwashita, chief market economist at Nikko Cordial Securities in Tokyo. “Core prices won’t likely stop falling at least until fiscal 2012.”
So-called core-core consumer prices, which exclude energy and food and mirror the U.S. inflation index, fell 1.1 percent in February, compared with a record 1.2 percent drop posted in December and January, the report showed.
“Our focus is increasingly shifting to core-core price data,” which aren’t subject to energy cost factors and therefore reflect price trends more clearly, said Yoshiki Shinke, a senior economist at Dai-ichi Life Research Institute in Tokyo.
Many of the BOJ’s board members showed concern about recent drops in core-core prices, minutes of the bank’s February board meeting showed this week.
In Tokyo, core prices slid 1.8 percent in March on the year, the same pace as the previous month. The figures for the capital are released a month earlier than nationwide data, making them a harbinger of price trends.
BOJ board members will update their forecasts for inflation and economic growth in a twice-yearly outlook report to be published at the end of April. They predicted in January that core prices will fall 0.8 percent in the year that starts April 1 and drop 0.4 percent in the following 12 months.
The policymakers may raise their price forecasts, given that the economy is improving at a faster pace than predicted, said Chiwoong Lee, a senior economist at Goldman Sachs Group Inc. in Tokyo.
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