Reports from Japan indicate that consumer prices declined in July for the fifth month in a row.
Inflation in Japan Falls to New Low
Reports on declining consumer prices were in fact worse than was predicted and signified the largest yearly fall in over three years.
The country’s consumer price, which does not take into account unstable prices of food, fell by 0.5%.
Japan has been attempting to boost inflation for many years now in an effort to encourage spending and in turn stimulate economic growth.
However, this latest tumble in the inflation rate follows weaker than expected performance in Japan’s economy according to data released at the start of this month.
The poor economic performance has been experienced in spite of increased government spending.
In July, Abe Shinzo, Japan’s Prime Minister introduced another round of stimulus worth $265 billion.
The country has been desperate to boost economic growth through increased consumer spending which contributes to 60% of the country’s economy.
Abenomics, a catch phrase for the government’s economic reforms comprise of monetary, fiscal and structural aspects that are designed to boost economic growth and bring better fortunes for the economy.
The monetary aspect consists of fighting deflation by increasing the supply of money. The fiscal aspect entails increased government spending to boost demand in the economy while the structural aspect entails structural reforms to improve competitiveness and productivity in the economy.
No signficant change
However, three years of applying Abenomics has not seen any significant change in terms of boosting inflation, which to date remains lower than the 2% target set by the central bank.
The falling inflation rate may be attributed to low consumer spending at the household level combined with a strong yen, which has caused import prices to fall.
It is expected that the inflation rate will remain low or fall further.
Marcel Thieliant, a senior economist at Capital Economics noted that, “Inflation may weaken more in the coming months.”
He added, “The Bank of Japan has seen that there are significant risks to its predictions of hitting a 2% inflation target in the next fiscal year. It is therefore expected that more stimulus will be introduced in the next central bank meeting September.”