Japan November Consumer Prices Fall for 21st Month as Deflation Persists

Japan’s consumer prices fell for a 21st month in November, a sign sustained deflation may prompt the central bank to revise its price projections.

Consumer prices excluding fresh food declined 0.5 percent from a year earlier, the statistics bureau said today in Tokyo. That compared with a median 0.6 percent drop predicted by 28 economists surveyed by Bloomberg News.

Entrenched deflation is weighing on an economy at risk of contracting this quarter as the effects of Prime Minister Naoto Kan’s stimulus spending fades. Miyako Suda, a Bank of Japan policy maker, said this month the persistent price falls will continue in the year starting April, an outlook that conflicts with the bank’s forecast of moderate inflation in the period.

“The BOJ will probably be forced to reconsider its price projections,” Mari Iwashita, chief market economist at Nikko Cordial Securities in Tokyo, said before the report. “It’s highly likely that the period of deflation end will be pushed back further.”

The BOJ board forecast in October core prices will rise 0.1 percent next fiscal year and 0.6 percent the following year.

Also lowering the chance of an end to deflation is the rebasing of the price index next August, BOJ’s Suda said. The statistics bureau reshuffles the basket of goods used to measure CPI every five years, a move that Goldman Sachs Group Inc. estimates may lower the inflation rate by about 0.4 percentage point. The last government revision pushed down prices by about half a percentage point.

Cut Forecasts

“Prices will keep falling, though the pace of declines will likely moderate,” said Jun Ishii, chief fixed income strategist at Mitsubishi UFJ Morgan Stanley in Tokyo. “The BOJ will probably have to cut its consumer price forecast following a rebasing, which may intensify deflationary expectations.”

The central bank in October reduced its key interest rate to the range of zero percent and 0.1 percent and pledged to maintain the policy until it can forecast stable price increases, which board members consider around 1 percent.

Falling prices tend to erode corporate earnings, putting pressure on wages, weakening consumption and making debts harder to pay off. Deflation has afflicted Japan for more than a decade.

Companies are cutting prices to prompt penny-pinching consumers to loosen their purse strings.

Zensho Co., a nationwide beef-bowl restaurant chain, this month lowered prices by 11 percent to increase sales, its third price-cut campaign this year.

To contact the reporters on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net

To contact the editor responsible for this story: Chris Anstey at canstey@bloomberg.net

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