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Economy in Brief

Japan CPI Rises in December, a Second Consecutive Year/Year Increase
by Carol Stone January 27, 2006

Japan business and government leaders today were excited to report a second straight month of positive consumer price performance. The most widely followed CPI series is the total excluding fresh food, and it rose 0.1% year-on-year in December, following an equal move in November. The index was flat in October. So, by this gauge, the nation has not experienced deflation since early autumn. This development is already sparking talk of monetary policy changes as it perhaps signals that the long era of deflation has finally concluded. There was further encouragement from the local Tokyo area index, which moved into positive territory for January.

The upward price movements in the national index came in several sectors: housing costs, clothing, transportation and fuel. There was also less deflation in communications charges and in furniture and appliance prices. A separate "core" rate which, similar those in other countries, excludes energy as well as food, rose to +0.1% in December, its first positive reading. There is only slightly more than a year's history for this measure in Japan, however, so this move is less meaningful.

While the "increases" in the aggregate CPI series are minimal, they are the first since mid-1998, that is, more than seven years ago. The trend at that time was headed clearly downward, in the wake of the Asian currency crisis and in the face of general weakness of the Japanese economy. Now, finally, prices are firming, and this on the back of better demand. Retail sales in December, also reported today, rose 0.8% month-to-month in December, making 2005 the first year of positive growth in these sales since 1996. So perhaps there is in fact room for encouragement about the state of the Japanese economy.

Japan CPI: Yr/Yr % Changes, NSA Jan 2006 Dec 2005 Nov 2005 Oct 2005
2004 2003 2002
CPI Headline* -- +0.1 +0.1 0.0 -0.2 0.0 -0.7
Total CPI -- -0.1 -0.8 -0.7 +0.2 -0.4 -0.3
Commodities ex Fresh Food -- +0.2 0.0 +0.1 -0.1 -0.3 -1.5
Fresh Food -- -7.5 -16.8 -14.2 +9.3 -6.6 +9.6
Services ex Imputed Rent -- 0.0 0.0 -0.4 -0.5 +0.3 +0.2
Total CPI, Ku-area of Tokyo +0.1 -0.2 -0.3 -0.3 -0.4 -0.1 -0.7
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