Japan prices fall at record rate

Sep. 29 2009

Consumer prices in Japan tumbled at a record pace in August according to fresh government data, raising fears that a prolonged downward spiral of deflation could undermine the country's fragile economic recovery.

Figures released on Tuesday showed Japan's key core consumer price index (CPI) falling 2.4 per cent from a year earlier, as rising unemployment and falling wages kept domestic demand weak.

The data represents the sixth straight month of declines in the index, and the biggest fall since 1971 when officials first began recording comparable data.

The index excludes volatile fresh food prices and also includes fuel and energy costs.

The falls come despite recent signs of an improvement in the Japanese economy, which returned to positive growth in the second quarter of 2009, after its worst recession since the second world war.

Japan was stuck in a deflationary spiral for years in the early 1990s, prompting consumers to put off purchases in the hope of further price drops and reducing corporate earnings.

The latest data suggest the world's second largest economy could face another bout of prolonged deflation.

According to the latest government statistics, the core CPI for the Tokyo area fell 2.1 per cent in September, suggesting that prices nationwide are likely to continue their downward trend.

Prices in the nation's capital are considered a leading barometer of price trends across Japan.

Last month the Bank of Japan said that while some indicators showed signs of recovery, Japanese companies and consumers remained reluctant to spend.

Meanwhile unemployment is continuing to rise, with economists expecting the jobless rate to surpass a record high of 5.7 per cent hit in July.

Boosting domestic demand is a top priority for Japan's new government, voted into power in a landslide election win earlier this month.

Yukio Hatoyama, the new prime minister, has promised cash handouts to families with children, toll-free highways and income supplements for farmers.

Source : Aljazeela