Japan's consumer prices fall at decade-fast pace, add to deflation fears

Leika Kihara, Reuters

Posted at Jan 22 2021 01:33 PM

A man wearing a facial mask, following the coronavirus disease (COVID-19) outbreak, stands in front of an electric board showing Nikkei (top in C) and other countries stock index outside a brokerage at a business district in Tokyo, Japan, January 4, 2021. Kim Kyung-Hoon, Reuters

TOKYO - Japan's core consumer prices fell 1 percent in December from a year earlier, the fastest drop in a decade, in a sign that deflationary pressures are intensifying in the economy as the coronavirus pandemic drags on.

Friday's weak data underscores the challenges policymakers face in preventing the spread of the virus without adding to strain on an economy already suffering from a renewed state of emergency rolled out this month.

The drop in nationwide core consumer price index (CPI), which includes oil products but excludes fresh food prices, compared with a median market forecast for a 1.1 percent drop and followed a 0.9% decline in November.

It was the biggest annual fall since September 2010, when Japan was grappling with grinding deflation and a spike in the yen that dealt a severe blow to the export-reliant economy.

While slumping oil prices were partly to blame for the drop in prices, the data highlights the risk of Japan sliding back to recession and deflation as COVID-19 wipes out the benefits of former premier Shinzo Abe's "Abenomics" stimulus policies.

The core-core CPI, which strips away fresh food and energy costs, fell 0.4 percent in December from a year ago, the data showed.

After suffering its worst postwar contraction in April-June last year due to lockdown measures to combat COVID-19, Japan's economy has been recovering thanks to improving exports and robust domestic demand for durable goods.

But a renewed spike in infections forced the government to declare a new, limited state of emergency that will likely hurt service spending, potentially hampering a sustained recovery.

(Reporting by Leika Kihara
Editing by Kim Coghill & Shri Navaratnam

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