Situation
Consumer prices - the main inflation indicator was down in Feb’07.
On a monthly basis prices were down to -0.50% ( Jan’07 was at -0.20%).
On an annual basis prices were down to a -0.20 % p.a ( Jan’07 was at 0.00%)
Background
- The Bank of Japan (BOJ) raised the uncollateralized overnight call rate from 0.25% to 0.50% on Feb 21 2007 ( with a comment that future rate hikes would depend on growth and consumption).
- Producer Price Index (PPI) growth rate dropped in Feb’07 (read : PPI growth rate drops - effects interest rate outlook)
- Consumer prices have been dropping since Aug’06 ( read : Prices flat in Jan’07 - down from 0.3% p.a in Dec’06)
- Production is expected to increase in Mar’07. ( New orders position seem to back this)
Conclusion (click on picture for a larger visual)
- The BOJ’s raising of interest rates in Feb’07 should keep CPI in the negative territory
- It does look like CPI will remain between 1.00 % to a -1.00 % p.a towards Jun’07. ( tendency towards a -1.00% p.a)
- As such the BOJ may have a relaxed posture towards raising interest rates( i.e not raise) in the coming months.
Note
The expected increase in production in Mar’07 may not be matched by increase in demand ( so will finished products prices drop further ? )