Japanese prices halt slide amid revival push

Progress in fighting deflation may encourage companies to raise salaries

PUBLISHED : Saturday, 26 October, 2013, 2:55am
UPDATED : Tuesday, 29 October, 2013, 4:47pm

A gauge of Japan's prices ended four years of declines, signalling progress in Prime Minister Shinzo Abe's campaign to stamp out deflation and drive a sustained economic revival.

Prices excluding energy and fresh food were unchanged last month from a year earlier, after sliding every month since December 2008, the statistics bureau said yesterday. That matched the median forecast of 19 economists in a survey.

Progress in countering deflation may help Abe sustain confidence in the country's economic recovery and encourage companies to raise wages as an increase in sales tax planned for April threatens to deal a blow to consumption. Fiscal and monetary stimulus is underpinning a revival in the world's third-biggest economy after 15 years of deflation.

"[Yesterday's] data shows that an entrenched deflationary trend is coming closer to ending," said Akiyoshi Takumori, the chief economist at Sumitomo Mitsui Asset Management. "Wage growth will be key to cushioning the price increases."

Consumer prices excluding fresh food grew 0.7 per cent from a year earlier, a fourth consecutive gain and matching the median estimate of economists. The Bank of Japan focuses on this gauge as its key measure, with board members seeing a 0.6 per cent gain this financial year and 1.9 per cent in the year starting April 2015, according to their median forecast in July. They will update their outlook at a meeting next week.

Abe and the central bank are targeting 2 per cent inflation.

Regular wages excluding overtime and bonuses declined 0.6 per cent in August from a year earlier, a 15th consecutive drop. Abe said on Thursday he would continue asking companies to raise salaries.

Petrol prices increased to 161.4 yen (HK$12.85) per litre last month, the highest level since 2008, according to the trade ministry. They stood at 160.1 yen this week.

Demand for liquefied natural gas may rise as the country enters colder months without any nuclear plants in operation, pushing up electricity costs, according to the meteorological agency.

Processed-food maker Ajinomoto says it will raise prices of some items by 6 to 7 per cent from January because of the rising cost of bonito fish and the weaker yen.