Falling prices threaten to hit Japan's growth

TOKYO: The acceleration of Japan's economy to the fastest growth pace in more than two years masked a slide in prices of goods and services that threatens to temper the nation's recovery.

The domestic demand deflator, a measure of price levels that excludes the cost of imports, fell 2.6 percent in the third quarter from a year earlier, the most since 1958, Cabinet Office figures showed in Tokyo. At the same time, gross domestic product jumped 4.8 percent, the most since early 2007.

Sustained price declines threaten to curtail a corporate-profit rebound that's already been insufficient to spur a rally in Japan's shares this quarter. The report prompted Deputy Prime Minister Naoto Kan to say the government may outline an emergency-spending package, adding "I'm concerned we're entering into a deflationary situation."