Japan’s Core CPI Falls to 10-Year Low: Deflation Worries Surface
Arslan Butt • 1 min read
Core consumer prices across Japan fell at the fastest pace seen in 10 years during the month of December, heightening fears that the world’s third largest economy could experience deflation. According to data released by the government, Japan’s core CPI, which includes oil but excludes volatile food prices, dropped by 1% YoY in December 2020.
While the figure came in better than economists’ forecast which was for a drop by 1.1% instead, this was the worst reading for core CPI seen since September 2010 – a time when Japan had suffered deflation. Analysts are also concerned that the latest state of emergency imposed across parts of Japan could further dent consumer consumption and drive possible deflation.
While at its latest meeting, the BOJ chose to keep monetary policy unchanged, the increasing risk of deflation could force the central bank to focus its efforts on achieving the elusive 2% target for inflation despite the various stimulus measures being rolled out. Analysts expect the weak CPI data to be an important consideration when the BOJ relooks at its framework in an effort to improve the efficiency of its policy tools.
According to BOJ governor Kuroda, “I don’t think the risk of Japan sliding back into deflation is high. But potential growth may be falling so we need to look at the impact (on prices) carefully.”