Japan inflation falls to zero in January
By: David Pilling
March 2, 2007 - The Financial Times
Japanese inflation as measured by the core consumer price index fell to zero in January, the first flat reading in eight months, according to official statistics released on Friday.
The rate of change of core CPI, which excludes fresh food but not energy, fell to 0.0 in January from 0.1 per cent in December.
Stripped of energy prices, the normal practice in most advanced economies, the CPI fell 0.2 per cent, the 13th straight month of decline.
Even including energy, the core inflation could turn negative over the next month or two, reflecting cheaper prices for crude oil than a year ago.
Toshihiko Fukui, governor of the Band of Japan, had signalled the possible dip in inflation last week after the central bank’s decision to raise interest rates a notch to 0.5 per cent. Explaining the rate increase, he told parliament that although the CPI might fall to "around zero" because of lower commodity prices, the general upward trend remained in place.
The BoJ could nevertheless face a few tricky months as it tries to defend its policy of gradually tightening rates in the absence of any discernible inflationary pressure. Nobuyuki Nakahara, a former BoJ board member but a long-time critic of the bank’s thinking, said any sign that the economy was faltering would put the bank under extreme pressure.
Mr Nakahara said the bank could even be blamed for the fall of the stock market and strengthening of the yen over the past few days, even though market turbulence has been triggered by events in China and the US. “The light was lit elsewhere, but they are responsible for filling up the gas tank,” he said.
The fall in Japan's headline inflation rate partly reflects a sharp decline in the price of items such as flat-screen televisions and DVD recorders, which have a bigger influence on the headline number following a re-weighting last year.
More broadly, the tight labour market has not produced the upward pressure on wages that many - including the BoJ - had expected.
Separate data on Friday showed the headline unemployment rate falling to 4.0 per cent in January from 4.1 per cent in December. But wages have stalled, blocking the normal transmission mechanism through which corporate profits should feed through to inflation.
Overall household spending rose 0.6 per cent in January in real terms from a year earlier, better than the 0.3 per cent expected. But economists are cautious about the accuracy of monthly consumption data and are unlikely to read too much into a single figure.
Copyright The Financial Times Limited 2007
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