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Japanese consumer prices flat in February

The core Consumer Price Index (CPI), excluding volatile fresh food prices, was unchanged from a year earlier, despite market expectations of a small drop. The figure was flat in January after rising 0.2 percent in December.

Prices did fall by 0.1 percent year-on-year in the “core-core” index, which excludes fresh food and energy prices.

Analysts say that as domestic and overseas demand is falling sharply amid the worldwide downturn, Japan will soon face deflation that is likely to last well into next year.

The world’s number two economy is on course for its deepest recession since World War II after logging its worst performance in almost 35 years in the last quarter of 2008, shrinking at an annualised pace of 12.1 percent.

Exports almost halved last month from a year ago, a record plunge, as global demand for Japan’s cars, televisions and other high-tech goods has dried up.

A barrage of data has been indicating weak commerce and consumption.

Retail sales fell 5.8 percent in February from last year, while wholesale plunged 25.8 percent, the trade ministry said Friday.

Sales at large retailers, which include supermarkets and department stores, plunged 8.2 percent, the biggest drop in 11 years, the data showed.

In a bid to kickstart the economy, Japan’s parliament on Friday passed a record 88.5 trillion yen (910 billion dollar) budget for the 2009 fiscal year, which set aside one trillion yen in special emergency reserves for projects such as public works.

Prime Minister Taro Aso plans to launch an additional budget for the new fiscal year, starting April, to pump up the economy.

Deflation, a persistent fall in prices, harms an economy because consumers delay their spending in the hope that prices will fall further. It also hurts companies that have to pay off loans in inflation-adjusted terms.

With Japan’s benchmark interest rate already at 0.1 percent, the central bank has little scope to stop prices from falling.

Hiroshi Watanabe, an economist at Daiwa Research Institute, told AFP Japan probably dipped into mild deflation in March, with worse to come.

“Going forward, we know the real economy will continue to deteriorate and the gap between supply and demand is widening,” Watanabe told AFP. “The flat trend of price movement will not continue. Prices will fall.”

He predicted core prices will drop at least 0.1 percent in March and April year-on-year and accelerate downwards in the summer—mostly because prices were far higher a year earlier amid the global oil and commodity price spikes.

“We are expecting deflation to last for two years, well into 2010,” he said.

However, Finance Minister Kaoru Yosano said it was “too early” to say Asia’s largest economy was in deflation. A sustained period of falling prices last hit Japan from the late 1990s, and the core CPI last dropped in September 2007.

The core CPI for the Tokyo metropolitan area, considered a leading indicator for Japan’s consumer prices, rose a preliminary 0.4 percent in March, data showed, with analysts blaming mainly higher food and energy prices.