Japan has fallen back in deflation. This was obvious well over a year ago, but those viewing things through the myopic eyes of prices are just catching on now. Please consider Japan Producer Prices Fall at Fastest Pace Since 2002.

Japan’s wholesale prices fell at the fastest pace in almost seven years, adding to signs the world’s second-largest economy may return to deflation.

My Comment: There is no “may”. What there is, is “is”. Japan, the US, UK, and EU are all in deflation as measured by any practical measure. See Humpty Dumpty on Inflation for details, if you are confused.

Producer prices, the costs companies pay for energy and raw materials, sank 2.2 percent in March from a year earlier, the biggest slide since May 2002, the Bank of Japan said in Tokyo today. That compares with a median estimate of 27 economists surveyed by Bloomberg News for a 1.8 percent decline.

The Bank of Japan’s quarterly Tankan survey this month showed manufacturers expect the costs they pay for goods and materials to fall to the lowest level in seven years. Expectations of lower prices ahead can prompt consumers to delay purchases, eroding corporate profits and forcing firms to cut wages, causing a downward spiral in demand.

My Comment: Which came first” consumers delaying purchases (i.e. sentiment) or lower prices? I propose it is consumer sentiment. People stopped buying stuff they could not afford or did not need. In response prices fell. Saying that consumers are holding off buying stuff because prices are falling has it backwards.

“Price declines will probably gather momentum toward the middle of the year,” said Junko Nishioka, an economist at RBS Securities Japan Ltd. in Tokyo. “People are going to become more concerned about the risk of deflation in coming months.”

No one should be concerned about falling prices except unfortunately those deep in debt betting on or needing rising asset prices. Moreover, falling prices on goods and services are exactly what’s needed. If prices drop far enough people will buy stuff. It amazes me that 99% of economists cannot figure this out.

Mike “Mish” Shedlock
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