Saturday, 27 June 2009

Japan faces deflation but US consumer spending rises

The end of the week sees Japan again facing deflation. Bloomberg reports:

Japan’s consumer prices fell at a record pace in May, adding to the risk that deflation will become entrenched and hamper a rebound from the nation’s worst postwar recession.

Prices excluding fresh food slid 1.1 percent from a year earlier after dropping 0.1 percent in the preceding two months, the statistics bureau said today in Tokyo. It was the sharpest decrease since comparable figures were first compiled in 1971.

Deflation is less of a concern in the US. Again From Bloomberg:

Consumer spending rose in May as benefits from the Obama administration’s stimulus plan spurred a jump in American incomes, a sign that efforts to revive the economy are starting to pay off.

The 0.3 percent increase in purchases was the first gain in three months, the Commerce Department said today in Washington. Earnings climbed 1.4 percent, the most in a year, driving the savings rate to a 15-year high...

The jump in incomes last month reflected tax cuts and Social Security payments from the government’s stimulus plan, the Commerce Department said. Without those benefits, wages and salaries dropped 0.1 percent in May, showing the effects of mounting job losses...

Today’s spending report also showed inflation moderated. The price gauge tied to spending patterns rose 0.1 percent from May 2008, the smallest gain since records began in 1959. The Federal Reserve’s preferred gauge of prices, which excludes food and fuel, rose 0.1 percent from a month earlier and was up 1.8 percent from a year earlier.

While fiscal stimulus may be temporarily helping income and spending, improving consumer sentiment should also help.

A separate report today showed consumers grew more confident in June, underscoring that the worst of the recession has passed. The Reuters/University of Michigan final index of consumer sentiment gained to 70.8 from 68.7 in May.

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