TOKYO, Oct 26: Japan said on Friday its core consumer prices fell for an eighth straight month in September, but there were signs that Asia’s largest economy might be finally winning its long struggle with deflation.
Despite its gradual recovery from a slump stretching back over a decade, Japan’s economy has taken longer than expected to decisively exit deflation, with consumer prices returning to negative territory early this year.
Now signs of an upturn in the Tokyo area have triggered expectations that prices across the country could soon return to a positive trend.
“With energy prices starting to make a positive contribution we expect flat year-on-year growth for October and, in November, the first move into positive territory in 10 months,” predicted Morgan Stanley economist Takehiro Sato.
Japan’s core consumer prices, which exclude fresh food, fell 0.1 per cent in September from a year earlier, the government said, in line with expectations.
But the core CPI for Tokyo alone in October, which is seen as a leading indicator for national price trends, rose 0.2 per cent from the previous month and was flat from a year earlier.
If the nationwide index rises by the same magnitude month-on-month in October it would be up 0.1 per cent from a year earlier, analysts said.
Record high oil prices are expected to put upward pressure under prices in the near term, said Mamoru Yamazaki, chief economist at RBS Securities Japan.
“In addition, other prices such as food and taxis and many items are reported to be rising in price. Next year I think that prices will be pushed up mainly due to a gradual change in macroeconomic conditions,” he said.
The government also said it would not include new discount mobile telephone price plans in the CPI, easing concerns that aggressive competition between the major mobile operators could delay an exit from deflation.
But ministers remained cautious about prospects of a return to inflation.
“The end of deflation is in sight, but the situation is not moving forward,” said Economic and Fiscal Policy Minister Hiroko Ota.
Lingering concerns over deflation have created a headache for Japan’s central bank, which last year raised interest rates for the first time in almost six years, followed by another quarter-point hike in February.
Although deflation makes goods cheaper for consumers, it is considered negative for the overall economy as it encourages people to put off purchases and undermines corporate profits, wages and property prices.
With global financial markets still shaky after the rout sparked in August by US housing market woes, doubts are growing about the chances of another interest rate hike this year.
Although the Japanese economy is gradually recovering from the recession of the 1990s, there are worries that slowing growth in the United States could undermine demand for Japanese cars, electronics and other goods.
The government also reported that Japan’s industrial output dropped by 1.4pc in Sept from the previous month as automakers curbed production.—AFP
