Fall in Japanese wholesale prices sparks further fears of deflation

| July 10, 2009

Figures from the Bank of Japan have revealed that Japanese wholesale prices tumbled 6.6% in the year to June – the fastest pace of decline since records began almost 50 years ago.

The figures have raised fears that the world‘s second largest economy could see a short period of deflation.

A short period of deflation (where prices fall rather than increase) could be a serious threat to the economy because it deters consumers and businesses from spending in expectation of falling prices.

Tetsuro Sawano, of Mitsubishi UFJ Securities, believes the fall in wholesale prices is highly likely to widen throughout the summer months – exceeding 7% in July.

The news comes after Japan’s core consumer price index (CPI) fell 1.1% in May compared with the same month last year – the most since records began almost forty years ago.

Deflation was a problem for Japan during its so-called “Lost Decade” in the 1990s.

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