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Economy in Brief

Deflation Is Back!
by Robert Brusca February 27, 2009

Deflation strikes back -- Uh, oh… Japan’s prices are falling again. The chart of Japan’s Core CPI looks like the path of the ground hog on ground hog’s day. In this case it is not four more weeks of winter but another bout with deflation that is in prospect. Japan’s quantitative easing seemed to have been successful in dispatching Japan’s deflation as inflation began to rise in 2008. Then as oil prices plunged, as the yen soared and as financial crisis gripped the global economy, Japan’s recession took hold and now deflation is back. Just today Japan issued a report of a 10% Yr/yr drop in industrial production and with dwindling consumer spending. The downturn fuels the deflation and deflation fuels the downturn. Japan’s economy has been performing badly enough that the yen has reversed its course and is now depreciating. The near 50% drop in Japan’s exports yr/yr is a clear demonstration of how much the global economic downturn is battering Japan. But the re-emergence of Japan’s deflation is a bad sign and an event that will make Japan’s recovery that much more difficult.

Japan CPI Trends
  Jan-09 Dec-08 Nov-08 3-mo 6-mo 12-mo Yr-Ago Q-to-Date
All Items -0.4% -0.5% -0.4% -5.0% -3.1% 0.0% 2.8% -5.0%
All items less food and energy-0.2% -0.2% 0.0% -0.1% -1.2% -0.4% -0.2% 0.4% -1.4%
Allitems except fresh food -0.2% -0.5% -0.6% -5.0% -3.1% 0.0% 3.2% -4.3%
Seasonally Adjusted By Haver
Food& Beverage -0.5% 0.1% 0.4% 0.0% 0.8% 3.4% 2.0% -1.7%
housing -0.1% 0.0% 0.0% -0.4% -0.2% 0.0% 0.0% -0.6%
Clothing $ Persoanl -1.2% 0.0% 0.1% -4.2% -1.8% -0.9% 3.6% -6.7%
Education 0.1% 0.0% 0.1% 0.8% 0.6% 0.7% 2.8% 0.8%
Medical are 0.6% 0.1% -0.4% 1.2% 0.4% 0.1% 0.8% 3.3%
Misc 0.0% -0.1% -0.1% -0.8% -0.4% -0.1% 2.4% -0.6%
Reading & Rec -0.9% -0.1% -0.2% -4.9% -1.9% -1.3% -2.0% -6.2%
Transport&Comm -1.2% -2.1% -2.7% -21.8% -16.7% -6.3% 10.8% -19.5%
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