Japan Inflation Slows for Second Month as Oil Tumbles

By Mayumi Otsuma

Nov. 28 (Bloomberg) -- Japan’s inflation slowed for a second month in October as oil and commodity prices tumbled, providing relief to cash-strapped households in a recession.

Consumer prices excluding fresh food rose 1.9 percent from a year earlier, slower than the 2.3 percent pace in September, the statistics bureau said today in Tokyo. The result matched the median estimate of 33 economists surveyed by Bloomberg News.

Oil and grain prices, which drove inflation to a decade high last quarter, will keep falling and may drag the core index into negative territory next year, economists say. Lower costs alone may not spur spending by households, whose sentiment has slumped to the worst on record as companies fire workers and keep a lid on wages.

“The effect of cheaper goods is being outweighed by negative factors such as the gloomy outlook for incomes and the job market,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “Core prices may start falling in July or August next year and remain negative for several months.”

Separate reports showed the unemployment rate unexpectedly fell to 3.7 percent in October from 4 percent as people stopped looking for work. Household spending declined 3.8 percent, the eighth consecutive drop.

The yen traded at 95.42 per dollar as of 8:41 a.m. in Tokyo from 95.41 before the figures were published. Japan’s currency has risen 11 percent against the dollar since September, making imports cheaper.

Tokyo Prices

Core prices in Tokyo, where one in 10 Japanese lives, rose 1.1 percent in November from a year earlier, after climbing 1.5 percent in October, today’s report showed. Economists expected a 1.3 percent gain. Price trends in the capital tend to indicate future changes in nationwide inflation.

Other reports also show inflation is easing. Wholesale price gains slowed for a second month in October and costs companies pay for services slid for the first time in two years.

Crude oil has lost more than 60 percent its value since exceeding $147 a barrel for the first time on July 11. Soybeans, corn and wheat have also slumped from records as the global slowdown reduced demand.

Some retailers, taking advantage of the yen’s gain and cheaper raw materials, are reducing prices of daily necessities to stimulate consumer spending, which accounts for more than half of the economy.

Aeon, Seiyu

Aeon Co., Japan’s largest supermarket operator, and Seiyu Ltd., the local unit of Wal-Mart Stores Inc., slashed prices on between 1,000 and 2,000 foods and daily necessities this month to attract shoppers and boost sales.

Bank of Japan policy makers last month forecast that the core inflation rate will slow to zero in the year that starts April 1 from 1.6 percent in the current period.

Governor Masaaki Shirakawa said last week that his board isn’t worried that deflation may return to the world’s second- largest economy. Even so, he added, the central bank should watch whether the drop in commodity costs will spread to other goods and services and cause consumers to expect lower prices.

That’s a turnaround from only four months ago, when surging prices drove inflation expectations to a record.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net