Japan’s wholesale prices plunged at the fastest pace on record last month, data showed yesterday, fanning concern that deflation could overshadow a recovery in the world’s second-largest economy.
The prices of goods traded between companies tumbled by 8.5 percent last month from a year earlier, the central bank said.
It was the seventh straight month of year-on-year declines, and followed a revised fall of 6.7 percent in June.
PHOTO: REUTERS
The drop, the sharpest since comparable data became available in 1960, was mainly caused by declines in energy costs, which had surged a year earlier as crude oil prices hit record highs.
The slump also reflected weak domestic demand, with 48.2 percent of the items in the wholesale price index showing year-on-year falls last month, up from 44.4 percent the previous month, a central bank official said.
Hopes are growing that the economy is crawling out of its recession as a slump in exports and factory output eases, but there is concern that rising unemployment and deflation may hinder a recovery.
“Falling price pressure remains strong in Japan despite the recent signs of [an economic] recovery,” said Toru Shimano, an economist at Okasan Securities.
Prices should garner some support from economic stimulus measures, “but final demand in Japan is still weak,” Shimano said.
Month-on-month, however, wholesale prices rose 0.4 percent after a revised fall of 0.4 percent the previous month, the central bank said, lifting hopes that Japan will avoid a full-blown deflationary spiral.
“The trend of falling prices is probably bottoming out,” said Hideki Matsumura, a senior economist at the Japan Research Institute.
“The pace of price declines is likely to slow toward the end of the year,” Matsumura said.
Japan was stuck in a deflationary spiral for years after an economic bubble burst in the early 1990s, prompting consumers to put off purchases to wait for price drops and the Bank of Japan to slash interest rates to almost zero.
Bank governor Masaaki Shirakawa said on Tuesday that while consumer prices are expected to keep falling for a while, the economy is unlikely to sink into another deflationary spiral.
But “even if the economy does recover, it will not be a strong rebound,” Shirakawa said, after the Bank left its main lending rate unchanged at 0.1 percent.
Japan’s core consumer prices fell 1.7 percent in June from the previoous year, the biggest drop on record, the government has previously reported.
Against this backdrop, the Bank of Japan will probably maintain its stimulative monetary policy for some time yet, analysts said.
Share prices closed down 1.42 percent yesterday as investors took profits a day after the market touched a new 10-month high on economic recovery hopes.
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