[December 25, 2008]

2ND LD: Japan's Nov. core CPI up 1%, slower rise sparks fear of deflation+

(Japan Economic Newswire Via Acquire Media NewsEdge) TOKYO, Dec. 26_(Kyodo) _ (EDS: ADDING INFO)

Japan's key consumer price index extended its gains in November, up 1.0 percent from a year earlier for the 14th straight monthly growth, due mainly to continued rises in energy and some food prices, the government said Friday.

But the pace of increase showed further slowdown as gasoline prices, which had led overall inflation earlier this year, marked a fall of more than 10 percent. The result sparked expectations the Japanese economy may possibly see deflation next year.

The core CPI, excluding volatile fresh food prices, stood at 101.6 against the base of 100 for 2005, the Ministry of Internal Affairs and Communications said in a preliminary report.

The headline reading followed a 1.9 percent rise in October and 2.3 percent increase in September. It almost matched the average market forecast of a 1.1 percent rise in a Kyodo News survey.

Energy costs as a whole rose 0.5 percent with electricity up 4.6 percent and gas up 7.1 percent. Prices for heating oil increased 6.1 percent.

However, those for gasoline dropped 10.7 percent, the biggest fall in 10 years, due to recent declines in crude oil prices. The cost of overall petroleum products slid 3.8 percent.

Nonperishable foods extended their gains, up 4.4 percent as a whole. Prices for cheese rose 35.1 percent, while those for spaghetti were up 33.8 percent, with margarine up 30.8 percent and chocolate up 24.6 percent.

But on a month-on-month basis, those prices started falling in November, and a ministry official said the rising trend may have peaked.

Economic and Fiscal Policy Minister Kaoru Yosano separately told reporters, "The earlier inflation, which was led by rises in crude oil and grain prices, has come to a certain end," adding that the government "must be watchful of possible deterioration in consumer sentiment next year" as Japan will remain under negative fallout from the slowing global economy.

With fresh food prices included, the CPI climbed 1.0 percent from a year before to 101.7 for the 14th straight month of rise.

Excluding both food and energy prices, the index remained almost flat at 99.5. The indicator is seen as similar to the core consumer price index used in the United States, with some experts saying it better reflects price trends.

Takahide Kiuchi, chief economist at Nomura Securities Co., said that Japan's consumer inflation has slowed at a faster rate than earlier thought.

The latest CPI "suggested year-on-year changes in the index could turn negative...in January at the earliest," Kiuchi said in his report. It also added to evidence that "the Japanese economy is returning to deflation at a faster pace, and may prompt the Bank of Japan to consider further credit-easing policies."

The BOJ last week cut its key interest rate to 0.1 percent from 0.3 percent and announced a set of measures to facilitate corporate financing and stimulate the country's flagging economy.

The core CPI for Tokyo's 23 wards in December grew 0.8 percent to 101.2, the ministry said. That matches the average projection of a 0.8 percent increase.

Consumer prices in Tokyo are seen as a leading indicator of prices across Japan.

Gasoline prices fell 25.0 percent while prices for petroleum products dropped 22.1 percent. Those for nonperishable foods rose 3.3 percent.

In the 12 months of 2008, the index rose 1.0 percent, compared with the zero percent growth in 2007, as a result of food and energy price gains, the ministry said.

Copyright ? 2008 Kyodo News International, Inc.

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