Japan prices down for record third year

By Alex Frew McMillan
CNN Hong Kong

TOKYO, Japan -- Japanese prices fell in December, the government said Friday, meaning they have dropped for a record three years in a row.

The consumer price index fell 1.2 percent in December, over a year ago, and was down 0.1 percent over November.

That meant that prices for the full year were, on average, 0.7 percent lower. The last time prices rose was in 1998.

With deflation fully entrenched in Japan, some members of parliament have called on the central Bank of Japan to set inflation targets, to jumpstart prices.

But the BOJ has resisted that move, and there are scant signs that its lax monetary policy and interest rates that are virtually at zero have done anything to stimulate Japan.

Prices likely to continue to slide

Friday's figures from the Ministry of Public Management, Home Affairs, Posts and Telecommunications in fact suggest deflation may be picking up.

The 1.2 percent drop in the overall CPI comes after a 1.0 percent year-on-year decline in November and 0.8 percent in October.

Month over month, though, the December 0.1 percent dip did not match November's 0.5 percent fall.

But given the deterioration in Japan's economy, prices are likely to keep sliding, according to J.P. Morgan economist Naoko Miake.

"The broader trend still shows that deflation continues at a steady rate, which is still reflecting largely supply-side pressures. However the near term risks are clearly to the downside," Miake wrote in a report.

Though lower prices are good short-term for consumers, a protracted spell of dropping prices makes it very difficult for companies to sustain their profit margins.

In December, the category that produced the biggest drop was furniture and household utensils. Sales of those goods were off 3.6 percent from the same time in 2000.

Only four categories saw rising prices. The costs of fuel and of education rose the most, up 1.1 percent and 1.0 percent respectively.

The only other products to see a price hike in December were medical care and housing, up 0.6 percent and 0.3 percent.

Overall, the cost of services held steady, while prices for goods fell sharply, down 2.6 percent from last year.

Government approves 0.0% growth

There is little sign of the three-year slide in prices halting.

The ministry also released the January consumer price index for greater Tokyo. The greater Tokyo data comes out a month before the national numbers.

The core CPI for Tokyo fell 1.2 percent over January 2001, and was down 0.7 percent from December.

The cabinet on Friday approved forecasts set in December that see Japan's economy showing no growth for the fiscal 2002 year, which starts in April and runs through March 2003.

The cabinet expects 0.0 percent growth for that year, after a 1.0 percent decline for the fiscal year through this March.