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Has Consumer Price Index Stopped Declining?

--The background against the first increase in five and a half years--

December 2003
Makoto Minegishi

The Economic Commentary series is edited and published by the Bank of Japan's Research and Statistics Department to provide material to deepen understanding on economic developments, mid-term economic themes, and economic indicators and statistics. The views expressed in the report are those of the authors and do not necessarily reflect the views of the Bank of Japan. The English version of this series is translated by our staff based on the Japanese original.

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The Consumer Price Index (CPI), excluding fresh food, had been declining at around 0.8 percent on a year-on-year basis until early 2003. However, the rate of decline diminished steadily thereafter. Recently, in October, it marked an increase of 0.1 percent for the first time in five and a half years (the last increase was in April 1998). This paper argues that the movements in the recent CPI are largely affected by temporary factors and hence, in its underlying trend, the CPI is likely to continue its gradual decline.