December CPI Falls at Fastest Rate since records began

On 30th January 2010, the Financial Times reported that -

Japanese consumer prices in December fell at the fastest rate since records began in 1971, highlighting the risk of a deflationary spiral.

The so-called core-core consumer price index, which excludes food and energy and so shows underlying inflationary pressure, was down 1.2 per cent on December a year ago. That is steeper than the declines in 2001 that prompted the Bank of Japan to launch its liquidity-boosting policy of quantitative easing.

Other data released yesterday - on unemployment, industrial production, housing starts and household spending - were upbeat, suggesting that Japan's recovery is still on track but slack in the economy is not being used up fast enough to stop deflation.


Excluding only fresh food, prices fell 1.3 per cent year on year in December, less than the 1.7 per cent fall in November. But preliminary data for the Tokyo area in January showed declines accelerating from 1.9 per cent to 2 per cent.


In other aspects of the economy, a slew of data suggested that growth in the October-December quarter was strong. The seasonally adjusted unemployment rate fell to 5.1 per cent in December from 5.2 per cent in November.

Industrial production rose 2.2 per cent from the previous month, and manufacturers forecast further rises in January and February...

The key question for Japan is whether the manufacturing recovery, driven by exports to Asian neighbours, will continue long enough to absorb unemployed workers and reduce deflationary pressure.