Japan's slippery slope: No letup in deflation
The latest data on Japanese consumer prices show the country remains in the icy grip of deflation -- a timely reminder to central bankers everywhere of how pervasive falling prices can become once an economy slips into that mode.
Japan’s consumer price index in August was down 2.2% from a year earlier, the Statistics Bureau reported Tuesday. That matched the decline in July.
Excluding fresh food, prices were down 2.4%, a record annual decline.
Food prices were down 0.1% in August from a year earlier, furniture prices were off 3.1%, and transportation and communication costs tumbled 7.6%.
Although the steep year-over-year decline in energy prices has put downward pressure on consumer price indexes worldwide in recent months, falling prices are more prevalent in Japan.
Its index of consumer prices excluding food and energy was down 0.9% in August from a year earlier. By contrast, U.S. consumer prices were up 1.4% last month excluding food and energy.
From Reuters in Tokyo:
"Falls in oil prices are the main reason for the decline in prices. But the economy is also stagnating, and we can see that in price declines for durable goods and also services that are relevant to consumers," said Atsushi Matsumoto, an economist at Mizuho Research Institute.
"The Bank of Japan has said annual price declines will start to slow, but it's taking a long time for this to happen, showing that deflationary pressure isn't decreasing."
Japan has been battling deflation for much of the last 20 years as its economy has struggled to revive after the bursting of the country’s stock market and real estate bubbles beginning in 1990.
A misguided decision to begin tightening credit in 2000 -- while consumer prices were in a renewed decline -- has haunted the Bank of Japan ever since.
-- Tom Petruno
Photo: In a Tokyo mall last month. Credit: Tomohiro Ohsumi / Bloomberg News