By Tetsushi Kajimoto and Brian Rohan
TOKYO/BERLIN (Reuters) - 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.
German inflation tumbled to just 0.5 percent this month, data showed on Friday, the lowest in nearly a decade and just half what it was in February. [nBAF000862]
But in the United States the talk was of rising price pressures, rather than deflation. A measure of core prices was at the high end of expectations in February. [nN27544329]
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 U.S. 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 Europe threatened the currency.
SOWING THE SEEDS
U.S. 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.
In Germany inflation tumbled to an annual 0.5 percent in March, its lowest level since July 1999, preliminary Federal Statistics Office data showed on Friday. That was half of the 1.0 percent rate recorded in February. [nBAF000862]
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. See
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.
STRUGGLING TO STIMULATE
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," he told parliament. [nLR49443]
British Prime Minister Gordon Brown hopes to persuade his fellow G20 leaders at the summit on April 2 to agree on ambitious spending. But his own central bank governor, Mervyn King, has questioned how much Britain can borrow to fund this.
Speaking in Brazil on Thursday, Brown said Britain must not rule out taking action needed to boost growth. But his host, President Luiz Inacio Lula da Silva, gave an uneasy reminder of resentment growing in poorer nations.
"(It is unfair) that the (poor) be the first to pay the bills of a crisis created by the rich -- not by any blacks, by any Indians, or by any poor," said Lula.
"This is a crisis fomented by the irrational behavior of white and blue-eyed people, who before the crisis seemed to know everything," said Lula, who has often blamed the United States for causing the global crisis by practicing "casino capitalism."
FINANCIAL FOOLS DAY
On Saturday big crowds are expected to march in a "Put People First" protest through London. A "Financial Fools Day" parade is also likely to converge on London's financial district on Wednesday to mark the G20 meeting.
"As the bankers continue to cream off billions of pounds of our money let's put the call out -- reclaim the money, storm the banks and send them packing," said a statement posted on a website by the anti-capitalist "Wombles" group. [nLI118029]
On the markets, Japan's broad TOPIX finished the week up 7.8 percent, its biggest weekly gain since 1997. "We've hit the bottom, we're making our way up," said Bell Potter Securities private client adviser Stuart Smith in Australia.
European stocks slipped 0.5 percent toward the end of a good week. "Cutting away the rhetoric and hyperbole, if you have more buyers than sellers, markets will almost certainly head north," said Chris Hossain of ODL Securities.
(Additional reporting by Sebastian Tong, Lucia Mutikani, Noah Barkin and Reuters bureaus around the world; Writing by David Stamp; Editing by Victoria Main)