Japan nears deflation as consumer prices stop rising

JAPAN, March 27: Annual core consumer inflation in Japan, the world’s third-largest economy, stopped rising for the first time in nearly two years in February.

The core consumer price index (CPI) was flat from a year ago, stripping out the effect of last year’s sales tax increase in April.

The last time the core CPI did not rise was in May 2013, when it was flat.

The latest figures are moving further away from the Bank of Japan’s (BOJ) inflation target of 2%.

The headline core CPI, which includes oil but not fresh food prices, rose 2% from a year ago, just below market expectations of a 2.1% rise.

More stimulus ahead?

Japan’s economy came out of a recession in the fourth quarter of last year, but its recovery remains fragile on sluggish household and business spending.

Economists said the data put more pressure on the central bank to expand its monetary policy as falling oil prices

keep inflation subdued.

But analysts do not expect the BOJ to add to last year October’s stimulus plans until the second half of this year, because officials had been anticipating the cooling inflation.

Other data, such as household spending falling 2.9% in February from a year ago while retail sales were down 1.8%, also highlighted the struggle policymakers face in steering the economy towards a recovery.

‘Good deflation’?

The unemployment rate, however, fell to 3.5% in the same time period – close to what economists see as full employment.

Jasper Koll, head of research at JP Morgan, viewed the data as “good deflation” saying that the good news was prices in Japan were coming down while wages were going up.

“Last year wages rose at around 1%. This year we just had the union negotiations and it looks like wage growth is going to double to about 2% – so there’s more nominal yen into the pockets,” he told the BBC.

“So a feel-good factor is starting to come back and that’s what’s going to generate a domestic demand recovery.”