Reports on Friday showing rising consumer confidence and personal income in the US suggested the worst recession there in seven decades may be nearing an end.

However, an expected drop in German prices failed to materialise, this month at least, according to a report in our sister publication, the Gulf Daily News.

In Japan, consumer prices fell 1.1 per cent last month from a year earlier, their deepest slide since records started being kept in 1970, as weak consumer demand and a slack export market persisted.

US consumer spending rose last month for the first time since February as government stimulus money pushed incomes up sharply, the Commerce Department said yesterday, supporting the view that nation was close to pulling out of recession.

Consumer spending, which accounts for over 70 per cent of US economic activity, rose 0.3 per cent last month, while April's reading was revised up to flat from slightly negative.

"This confirms our forecast that the economy is going to move into positive territory in the third quarter," said Mark Vitner, an economist at Wachovia in Charlotte, North Carolina.

However, hoped-for signs that the weak US housing market will rebound failed to materialise as KB Homes, the No 5 US homebuilder, reported a wider-than-expected quarterly loss and said orders had declined year on year.

In Europe, policymakers insist that the euro zone faces no serious risk of deflation, but data yesterday showed that annual German inflation was just 0.1 per cent this month - up from zero last month.

Analysts still expect consumer prices to start falling soon in Europe's dominant economy although it is unlikely to suffer a Japan-style malaise.

"German inflation is still at its lowest level since June 1987 and is bound to shortly enter negative territory in the months ahead before increasing again towards the end of the year," said Carsten Brzeski at ING Bank.

Japan's consumer price numbers were another sign of weakness in Japan's economy, which is beset by its second bout of deflation this decade.

The global recession has undermined demand for its exports and demand at home is shaky too.

Deflation, a pernicious downward spiral in prices, provokes a wide range of troubles. Economic activity slows as consumers postpone purchases in the hope of buying more cheaply later, while the debt burdens of companies and individuals rise in real terms.
In Switzerland consumer prices fell at the fastest pace in 50 years last month, and the central bank is waging war on deflation with a series of mostly unconfirmed market interventions to stop the Swiss franc rising, most recently on Thursday.

Meanwhile, French Prime Minister Francois Fillon warned that budget deficits "could compromise even the survival of our economic systems if we do not manage to control them."

France has a long-standing problem in holding its public deficit within an EU limit of 3 per cent of output and moving into surplus in times of growth. – TradeArabia News Service