Japan says CPI falls 0.3% in 2016, first fall in 4 years

[TOKYO] Japan's consumer price index dropped 0.3 per cent in 2016, the first annual fall in four years, government data showed Friday, in another setback for Tokyo's efforts to counter deflation.

Japan has been struggling to reverse a years-long deflationary spiral of falling prices and lacklustre economic growth.

Core consumer prices, which exclude volatile fresh food, declined 0.2 per cent in December from a year ago - slightly better than expectations of a 0.3 per cent decline - as weak household spending and meagre wage hikes keep a lid on inflation, the figures showed.

The monthly data - which marked the 10th straight month of price declines - are a blow to efforts from the government and Bank of Japan to pump up the economy.

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 the economy remains fragile and inflation well below target.

Officials have blamed external factors, such as falling energy prices and uncertainty related to emerging economies, for their failure to achieve a promised two per cent inflation level.

The central bank now expects to hit two per cent inflation by March 2019 - four years later than planned.

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. Mr Abe's promises to cut through red tape have also been slow in coming.

AFP