物価大幅下落 デフレ退治に最善を尽くせ

The Yomiuri Shimbun(Jun. 27, 2009)
Take every step to fight deflation
物価大幅下落 デフレ退治に最善を尽くせ(6月27日付・読売社説)

Are we seeing the start of a vicious circle in which both the economy and prices decline simultaneously?

The nationwide consumer price index fell 1.1 percent in May, year on year, recording the largest drop since the end of World War II.

The previous biggest fall in the CPI was 1 percent, recorded in May 2001. At that time, the Bank of Japan was fighting deflation, using the quantitative easing policy for the first time.

Prices have dropped more steeply than those at that time, and the pace of decline is expected to quicken.

In the summer of 2000, the central bank lifted its zero-interest-rate policy on the strength of its optimistic view on the outlook for the economy. The move aggravated deflation.

This time, one misstep could lead to deflationary spiral. Now that the economy has shown slight signs of recovery, every measure needs to be taken to fight deflation.

The effects of falls in crude oil and grain prices, which skyrocketed last year, are huge. However, prices of items excluding gasoline and food are increasingly falling. Even disregarding these special factors, current circumstances will tend to push the economy further into deflation.


Domestic demand anemic

One major factor is the slump in domestic demand, including consumption.

Department store sales have posted declines for 15 months in a row, and supermarket sales have fallen for six straight months.

Many stores have cut the prices of items they sell and brought forward summer sales. This is because goods tend not to sell unless they are marked down. Department stores are struggling to sell clothing items, but low-price brand stores are doing good business.

With shrinking incomes due to corporate restructuring and cuts in overtime work, households are have been sharply reining in their spending. As a result, companies are engaged in price wars, leading to a decline in profits. This in turn translates into wage cuts.

Curtailing spending is the right choice for individuals, but at the macroeconomic level, it prolongs a slump. In this regard, deflation is an intractable disease that robs an economy of dynamism.

One major problem is the 45 trillion yen demand-supply shortfall. So that the effects of current economic measures can kick in, the government must come up with new policies seamlessly.

Measures that can boost demand--such as programs to fight unemployment, aid for medical and nursing care, and promotion of growing businesses, such as those in the environmental and energy-saving fields--must be given priority. Belt-tightening polices such as across-the-board cuts in social security spending are a no-no under deflation.


Quantitative easing needed

If pessimistic views that deflation will deepen prevail, the economic situation may drastically deteriorate.

To combat the financial crisis that started in autumn, the Bank of Japan has supplied a large amount of funds to the market by purchasing long-term government bonds and corporate bonds, and the market has calmed down.

The main battlefield of monetary policy likely will shift to deflation. The central bank would be advised to come up with comprehensive quantitative easing measures with numerical targets and pledge those measures will be maintained until prices start to rise.

The Bank of Japan needs to show its determination to fight against the malignancy of deflation.

(From The Yomiuri Shimbun, June 27, 2009)
(2009年6月27日01時28分 読売新聞)

by kiyoshimat | 2009-06-27 09:41 | 英字新聞

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