TOKYO: Japan on Friday logged its first annual consumer price decline in four years, underscoring the challenges facing Tokyo’s fight to rid the world’s number three economy of deflation.
Government data showed prices dropped 0.3 percent in 2016 from a year earlier, as weak household spending and meagre wage hikes keep a lid on inflation.
In December alone, core consumer prices, which exclude volatile fresh food, declined 0.2 percent from a year ago—slightly better than expectations of a 0.3 percent fall.
But it was still the 10th straight month of decline, and another blow to the government and Bank of Japan’s efforts to pump up the economy.
However, on Wednesday, Japan posted its first annual trade surplus since the 2011 Fukushima nuclear disaster sent the country’s energy import bills soaring.
The upbeat trade figures also showed that exports rose in December for the first time in more than a year, as demand picked up for Japan-made auto parts and semiconductors.
Japan reports December household spending and factory output figures next week.
The country has been struggling to reverse a years-long deflationary spiral of falling prices and lacklustre economic growth.
Prime Minister Shinzo Abe came to office in late 2012 and launched his so-called “Abenomics” growth plan—a mix of massive monetary easing, government spending and red-tape slashing—but growth remains fragile and inflation well below target.
BoJ officials have blamed external factors, such as falling energy prices and uncertainty related to emerging economies, for their failure to achieve a promised two percent inflation level.
The central bank, which holds it first meeting of the year next week, now expects to hit two percent inflation by March 2019—four years later than planned.
“Prices may start to turn positive as energy prices recover, but inflation is unlikely to rebound strongly for now,” said Hideaki Kikuchi, an economist at Japan Research Institute.
“Consumer spending is weak and wage hikes have slowed.”
Falling prices discourage companies from making capital investments, while also slowing production.
Deflation can also discourage spending by consumers, who might postpone purchases until prices drop further or save money, creating further pressure on businesses.
The BoJ had hoped that consumers would spend more if prices were rising, persuading firms to expand operations and getting the economy humming.
But wage growth has fallen below expectations, meaning workers have less money to spend. Abe’s promises to cut through red tape have also been slow in coming.