Consumer prices in Japan dropped for the first time in 1995. According to the Management and Coordination Agency, the average nationwide consumer price index last year dipped 0.1 percent below the 1994 level to 107.7 (against 100 for the base year 1990). Behind the decrease were the streamlining of the distribution system and subsequent price-busting, which put downward pressure on the price of goods, especially home appliances and other durables, and significant reductions in the price of rice and perishables.
The first decline on the books
The average nationwide CPI has been extremely stable since 1992. It rose less than 2 percent in 1992 and 1993 and a mere 0.7 percent in 1994, when price-busting began to gather speed. Continued price-slashing in 1995 ultimately caused the downward shift in the index. This was the first time since 1971, when the current method for calculating the CPI was adopted, that minus growth was recorded.
Lower-priced goods outweigh higher-priced services
The price of durables, including home appliances, furniture, and clothing, fell 3.2 percent in 1995, thanks to widespread price-cutting and the growing availability of cheap imports. The price of rice, meanwhile, plummeted 12.4 percent, reflecting the shift from a poor harvest in 1994 to a bumper crop the following year. Overall the CPI for goods posted a negative increase of 1.3 percent.
On the services side, the cost of public utilities rose 1.7 percent, despite a reduction in electricity rates. This was mainly because of increases in highway tolls and tuition at national universities. This, together with higher rents, added up to an overall rise of 1.5 percent in the price of services. Nevertheless, the drop in the price of goods outweighed the rise in the cost of services to produce an overall decline in the cost of living.
Continued downturn unlikely
Most economists do not believe that the CPI will decline any further, since price-cutting cannot continue at its present pace and the gap between supply and demand should begin to close now that the economy is getting back on track. In the government's economic forecast for fiscal 1996, beginning April 1996, a rise of about 0.5 percent is predicted.
(The above article, edited by Japan Echo Inc., is based on domestic Japanese news sources. It is offered for reference purposes and does not necessarily represent the policy or views of the Japanese Government.)