June Corp Prices Showed Largest Drop

The Bank of Japan announced last Friday that Japan's corporate goods price index (CGPI) fell 6.6% year on year to 102.6 (100@2005) in June, marking the largest drop since comparable data became available in 1960. It was due to declining raw materials prices. On a month on month basis, the index dipped 0.3%.

Despite recent upgrades to the government's and the BOJ's economic outlooks, these figures suggest the Japanese economy still faces a significant deflationary risk. A supply-demand imbalance puts a lid on product prices. Falling prices hurt corporate profits and can indirectly depress consumer spending through concerns over employment and wages. Corporations try to break the vicious cycle with demands for natural energies or BRICs.