Japan slipped to the brink of deflation and inflation in Europe slid closer to zero, underlining a threat to the world economy before next week's G20 summit which is supposed to produce a cure for the crisis. But in the United States the talk was of inflation rather than deflation. The measure of core prices was at the high end of expectations while consumer spending rose for a second straight month in February, government data showed. Policymakers from the Group of 20 leading wealthy and developing nations will also plan tougher regulations to ensure that mistakes that led to the banking crisis are not repeated. But resentment is rising about how catastrophic errors in the boardrooms of the West are hurting the poor. Brazil's president attacked “irrational behavior of white and blue-eyed people” and thousands are expected to protest before the G20 meeting in London, demanding politicians “Put People First”. President Barack Obama is set to quiz leaders of the biggest US financial institutions on Friday about the economy and their businesses as his administration seeks broader power to regulate the financial system. Global shares dipped, pausing for breath at the end of a week that saw them gain 6 percent on hopes of economic recovery while the euro extended losses after Germany warned that fiscal irresponsibility in US prices edged up in February. Excluding food and energy, the index rose 1.8 percent after gaining 1.7 percent in January. “The core price index was on the high end of expectations. This will fan inflation fears. The Fed is sowing the seeds of future inflation,” said Scott Brown, chief economist at Raymond James & Associates in St Petersburg, Florida. But recession plus lower oil prices pushed Japanese consumer price inflation to zero in February. Retail sales also fell more than expected, showing that slumping global appetite for Japanese exports is hurting the world's second-largest economy. “Japan is facing consumer price deflation,” said Akira Maekawa, a senior economist at UBS Securities. A small drop in some consumer prices does no great harm. But significant broad-based falls can inflict severe economic damage, as personal and corporate debt piles grow in real terms and consumers postpone spending, awaiting further price falls. European policymakers have largely played down the risk of deflation, but data from German states on Friday showed that annual inflation is falling to very low levels. The wider euro zone reports inflation data next Tuesday. Economists predict the annual rate will fall under 1 percent in March and sink further in the next few months. That is well under the European Central Bank's 2.0 percent ceiling, opening the way for it to cut interest rates at its monthly policy meeting on Thursday. Economists expect it to lower the main rate by half a percentage point to 1.0 percent. Global policymakers are struggling to stimulate economic growth, cutting interest rates to close to zero in many big economies, raising infrastructure spending and buying assets from banks and companies to pump more money into the system. But German Finance Minister Peer Steinbrueck warned on Friday of trouble if governments did not respect the EU budget deficit limit after the worst of the crisis had passed. “If it is not taken seriously, I am telling you, the euro will have trouble one day in terms of its own credibility and stability.”
