Japan's Consumer Prices Decline 1.5% in April as Deflation Tightens Grip
Japan’s consumer prices fell at a faster pace in April as the government cut high school tuition fees as part of a pledge to assist households.
Prices excluding fresh food slid 1.5 percent from a year earlier, after dropping 1.2 percent in March, the statistics bureau said today in Tokyo. The result compares with the median estimate for a 1.4 percent drop in a survey of 23 economists surveyed by Bloomberg News.
The fee waiver introduced last month masks that deflation is starting to ease as growth picks up in the world’s second- largest economy. Even so, the Bank of Japan is likely to keep interest rates “close to zero until 2012 or later” to ensure inflation takes hold, the Organization for Economic Cooperation and Development said this week.
“Excluding the school fee effect, which is temporary, downward pressure on prices will keep waning, but the pace will be very slow,” said Hiroshi Watanabe, a senior economist at Daiwa Institute of Research in Tokyo. “Given this, the Bank of Japan’s exit from its emergency policy mode is still remote.”
Central bank Governor Masaaki Shirakawa said last week that he’s seeing signs of a sustained recovery. He repeated his pledge to keep a “very accommodative” policy to beat deflation.
Economic growth accelerated to a 4.9 percent annual pace in the first quarter, led by exports, the government said last week. The same report showed the domestic demand deflator fell 1.9 percent, the smallest drop in a year.
“The rebound of the economy, which began early in 2009, is starting to help disperse deflationary pressure,” said Yoshiki Shinke, a senior economist at Dai-Ichi Life Research Institute in Tokyo. “We must assume consumer-price declines would have slowed excluding the school tuition impact.”
Prime Minister Yukio Hatoyama’s government began waiving fees for households with children at public high schools and providing subsidies for students at private institutions from April 1. The central bank has estimated the step will lower core consumer prices by about 0.5 percentage point.
Japanese retailers continue to cut prices to spur consumer spending. Nitori Co., a furniture retailer, this week said it will lower prices of about 500 items by as much as 40 percent - - the company’s ninth round of discounts since 2008.
“Spending on some items, such as cars and home electrical appliances, are robust thanks to government subsidies, but consumers are still penny-pinching for everyday products,” said Daiwa Research’s Watanabe.
Japan’s producer prices, the costs companies pay for energy and unfinished goods, fell at the slowest pace in 16 months last month, tempered by rising commodity costs.
The Bank of Japan has faced pressure to fight deflation from the government, whose ability to spur the economy is constrained by record public debt. Finance Minister Naoto Kan has been urging the bank to adopt an inflation target, and last week repeated that he expects it to support the recovery.
Shirakawa this week warned against becoming too fixated on prices when setting policy. Central banks should aim to achieve a stable financial environment that helps sustain growth, and price stability is “not the sole factor,” he said.
The central bank last month began developing measures to encourage banks to lend in areas that may spur growth. It has held the benchmark interest rate at 0.1 percent since December 2008 and offered banks 20 trillion yen ($220 billion) in three- month loans under a separate program.
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