Japan Consumer Price Index:

 https://mainichi.jp/english/articles/20201120/p2g/00m/0bu/034000c 

Article:

TOKYO (Kyodo) -- Japan's core consumer prices fell 0.7 percent in October from a year ago, marking the sharpest decline in over nine years, weighed down by a domestic tourism-boosting subsidy program and weak energy prices amid the coronavirus pandemic, government data showed Friday.

The decline in the core consumer price index also came as it lost momentum in year-on-year terms, over the past year driven by a sales tax hike from 8 percent to 10 percent implemented in October 2019, according to the Ministry of Internal Affairs and Communications.

Ideas and Commentary:

The core consumer price index can sometimes be a very complicated index because so many factors can be involved in related to consumer behavior and buying patterns and reasons.

The tourism related boosting subsidy may seem like a good thing the help stimulate consumer spending especially when there are external and internal factors both in play at the same time. 

But any time there might be a subsidy, that in reality might actually have the potential to reduce real spending as consumers are relying on the subsidy to spend and not relying on their own income. 

So if they are waiting for the subsidy consumers may actually reduce spending until they get the subsidy.

And early reports indicate many families and consumers and even businesses were not getting the subsidies because of government red tape and other challenges.

The sales tax a year ago is still being talked about as it is even now causing challenges. In 2014 the sales tax affect actually only last about one quarter and then consumers were back to their normal spending behavior. It seems a little unfair to blame the 8% to 10% sales tax increase as the probable cause of continued decreases in consumer spending.

Article:

The core CPI -- excluding volatile fresh food prices -- dropped for the third straight month and economists expect prices to remain weak, reviving fears of Japan slipping back into deflation despite the Bank of Japan's massive monetary easing program.

The index last marked a 0.7 percent slip in March 2011, when a massive quake and tsunami struck northeastern Japan.

Ideas and commentary:

Japan it seems, is always in a period of deflation, at least recently. Deflation and inflation, in and of themselves are not the real problem. 

Who doesn't want lower prices, at least at the consumer level. Of course businesses would prefer higher prices for the potential for more revenue and profits.

But in reality there has to be a balance between the two. It can't be all deflation and it can't be all inflation. A growing stable economy needs a balance between lower prices and higher prices, not one or the other. 

But the Bank of Japan realized the Japan economy was more deflation than inflation, and made it their goal to try and reach a 2% inflation rate. The 2% goal is/was a balance between continued low prices and potential inflation.

Inflation in itself is not a problem, as it can indicate there is more continued demand in the economy. More demand indicating more overall economic activity The problem begins when the rate begins to edge above 4% and then certain parts or groups in an economy begin to suffer from prices that are too high. As such many central banks try to maintain a balance between 2 and 4 percent. 

Of course the BOJ has come out many times recently that its 2.0% goal is not working despite is attempts with massive monetary easing.

Of course the pandemic has not helped and of course may it worse as consumers cut back on spending in many areas in the economy.

Article:

"The fall looks big because of the 'Go To Travel' campaign and the petering out of the tax hike impact," said Yasunari Ueno, chief market economist at Mizuho Securities Co., adding that the underlying trend for the CPI is weak.

The government may be in a dilemma because the discount campaign is aimed at reviving demand and the economy but it negatively affects prices, according to Ueno.

The program, launched in July to partially subsidize Japan residents' domestic travel expenses, has been a drag on the CPI in recent months.

Ideas and Commentary:

Yes the "Go to Travel" campaign seems like a logical step to help revive consumer spending, but the pandemic has essentially reduced travel and spending to level that maybe the campaign can't overcome, at least for now.

The campaign might have added some incentive but at the same time it might have hurt some the economy. There have been reports that the campaign was not really benefitting all businesses and it seemed to only be benefitting a small and select group of businesses. 

As such those who it hasn't really benefitted maybe over the course of the pandemic have been forced to reduce prices as demand falls.

And consumers are looking for bargains in the economy will gravitate to those businesses that promote the campaign subsidy and avoid those who don't and in reality don't spend the extra needed income needed in the economy to show actual demand which helps in raising overall prices in the economy.

Article:

Starting in October, the tourism-boosting scheme was expanded to cover trips to and from Tokyo, the only place that had been excluded due to its relatively high number of coronavirus infections.

Accommodation fees plummeted 37.1 percent from a year ago, following a 30.0 percent slump in September.

Last month, the BOJ lowered its CPI forecast for fiscal 2020, projecting a 0.6 percent year-on-year fall, far from the bank's 2 percent target. Governor Haruhiko Kuroda has dismissed the idea of the travel initiative affecting overall price trends, saying its impact is limited to certain sectors.

Ideas and Commentary:

Yes, there maybe be many factors affecting the decrease in the CPI including hotel prices decrease for multiple reasons; low demand due to the virus situation, people not wanting to travel, and only going to hotels that are able to use the campaign. And as such other hotel not getting their share of visitors.

And then news reports of some consumers or whomever, taking advantage of the campaign by booking many hotels at the same time, getting the subsidy and not really staying at the hotels, as some news reports have indicated.

The travel campaign like Kuroda as indicated is surely not the main problem. The main problem of course is still consumers are still weary to travel and the campaign was not implemented evenly or even fairly for all businesses in the economy. But to be fair and honest consumers are going to go to where they want to go, despite any campaign. 

Article:

"When policy support is mainly aimed at preventing the economy from collapse, demand remains subdued and the CPI is expected to be in negative territory for a while," Ueno said.

Despite the lingering effect of the pandemic, Japan's economy rebounded in the three months to September from its worst contraction in the April-June quarter when activity was depressed by a state of emergency over the virus outbreak.

Ideas and Commentary:

Yes economic support is important. But the problem is without the intended support, the economy may have been even worse. CPI might have been worst. Its always better for policies and strategies that actually help release the full potential of the economy. 

Some policies while needed to help support and economy don't actually create incentives for an economy to reach it full potential. 

Its not that the policy or strategy is wrong but other factors, and in this case the pandemic has been too much for any or policy or strategy to fully revive an economy.

Article:

Crude oil prices were pushed down in October as the virus outbreak has raised concerns about economic growth. Kerosene prices sank 13.6 percent and those of gasoline 9.2 percent, according to the internal affairs ministry data.

"Energy prices may recover but the Go To campaign will be in place for a while. So we will carefully watch how prices will move overall," a government official said.

Ideas and Commentary:

Oil and energy prices can be both a positive and a negative. Energy prices are a catch 22. While consumer, being families and businesses that are the end users of energy supplies might want lower prices. The suppliers of energy might want higher prices overall for their revenues and profits.

But at the same time, suppliers might get lower prices when they bring the energy supplies to the consumers but they don't "pass on" the lower prices to consumers sometimes and they feel the need to keep their costs down while maintaining the same prices for their consumers.

Article:

The travel subsidy program is scheduled to end in January, but the government is considering extending it beyond that month.

So-called core-core consumer prices, which exclude fresh food and energy items, shed 0.2 percent from a year earlier, the first decline in two months.

Ideas a Commentary:

Again the travel subsidy can be both a positive and a negative. It might benefit some businesses and consumers but not all. And it might actually reduce some consumer spending as consumers seek out the subsidies and depend on the subsidy and not spend their extra income needed for increased demand in the economy. 

But some spending, in this pandemic situation might be better than nothing. The only challenge is, even in a normal economy, there are those who benefit and those who don't. Some businesses do better than others and some don't see the benefits that other businesses do.