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ECONOMY > Economic Indicators

Japan’s inflation hopes dim as price slides widen

  • August 27, 2016
  • , Nikkei Asian Review , 1:10 a.m.
  • English Press

TOKYO — Economists increasingly see Japanese consumer price growth languishing in negative territory for the rest of the year, with declines among a growing range of everyday goods raising a red flag.


The consumer price index excluding fresh food sank 0.5% on the year in July, falling for a fifth straight month, government data released Friday shows. This marks the sharpest drop since March 2013, just before the Bank of Japan launched its massive monetary easing program.


Prices fell for 30% of tracked items for the first time since April 2015. The CPI excluding energy and fresh food, the BOJ’s preferred measure, edged up just 0.5% — a far cry from December’s peak of 1.3%.


The decline has spread from shopping-list fixtures to less common purchases. Prices fell 2.3% for the most frequently bought items and 3.1% for goods purchased about once a month, while prices for products bought once every six months continued a slide that began in May.


Though falling gasoline prices and electricity rates were largely responsible for previous CPI contraction, everyday goods are playing a larger role of late, reflecting a growing tendency toward thrift. Kitchen cleaning products, considered a once-a-month purchase, dropped 6.3%, while the rise in plastic-bag prices slowed. Price declines accelerated for shampoo and fabric softener, typically bought every two months. Women’s short-sleeved T-shirts, counted in the twice-a-year category, cost loss than they did a year earlier for the first time since March 2013.


But prices are expected to pick up early next year if crude oil remains at its current level. “The CPI will move into positive territory in 2017, when downward pressure from energy prices will fade,” said Yoshiki Shinke, chief economist at Dai-ichi Life Research Institute, echoing the view of many of his peers.


Yet Kaori Nakamura of SMBC Nikko Securities expects the drop in prices of food and everyday goods to accelerate, citing factors such as a stronger yen. Widespread declines may prompt households to cut back on spending, reasoning that prices are unlikely to rise in the future. A return to positive CPI growth could take longer if consumption remains persistently depressed.


The base year for the CPI was switched from 2010 to 2015 starting with the July data. The government adjusted the index’s components and their weighting to reflect changing consumption trends.

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