Japan Wholesale Prices: Updated Nov. 30

 https://mainichi.jp/english/articles/20211111/p2g/00m/0bu/032000c

Article:

TOKYO (Kyodo) -- Wholesale prices in Japan surged 8.0 percent in October from a year earlier, the sharpest gain in four decades, on higher crude oil prices and a weaker yen that inflated import costs, the Bank of Japan said Thursday.

The prices of goods traded between companies marked the eighth straight monthly gain. The latest result is the largest increase since January 1981 when an 8.1 percent rise was recorded.

Inflationary pressure has been building in Japan but not as fast as in other advanced economies like the United States, bolstering the case for the BOJ to maintain its monetary easing to attain its elusive 2 percent inflation target.

Ideas:

An economy is a very complex organism and as such there are many different moving parts. While a 8.0 percent increase in wholesale prices doesn't sound good, it doesn't mean all wholesale business saw an increase in prices of 8 percent. Some might have  been more and some might have been less.

If you take out the weak yen and the increase in oil prices it would be interesting to see what exactly was the real increase in wholesale prices. 

What might be interesting is that the 1970's and the early 1980's was a period of high inflation globally. Also in the 70's and 80's were the OPEC oil supply shortages which resulted in high gas prices and long lines at gas stations globally.

The Bank of Japan should maintain its monetary policy as is, as the Japanese economy is a long way from getting back to normal or even a new normal or even back to the pre-pandemic level.

Article:

Japanese companies have been reluctant to pass on higher costs to consumers for fear of hurting demand, keeping the rise in core consumer prices, a key measure of inflation, only modest.

Higher costs, if not passed on to consumers, would squeeze corporate profits at a time when the economic recovery from a slump triggered by the coronavirus pandemic remains fragile.

Prices of petroleum and coal products jumped 44.5 percent, reflecting higher commodity prices.

Japanese consumers are already feeling the pinch as gasoline prices have recently hit a seven-year high while kerosene prices have risen to levels unseen over the past 13 years.

Ideas:

Consumer spending is always a challenge in Japan for the Bank of Japan to manage. Japanese consumers are very elastic meaning very sensitive to prices changes and companies are aware of the sentiment of consumers/customers and as such are very reluctant to pass on any or all of their costs to whomever is next in the supply chain.

The problem with that idea is that the profit margins of companies decrease as their supply costs increase meaning it crowds out needed spending by the company in areas such as investments and or increasing employee salaries.

As such its a never ending cycle that company's supply prices keep increasing, employees might not get increases in their salaries, and as employees are consumers/customers, they might have less disposable income as energy prices increase in their homes increase and or some companies might increase prices which means even less disposable income to use in the economy and as such consumer spending in the Japanese economy never reaches its full potential.

And of course then you add in higher gas prices and maybe some consumers have even less to spend in the economy. Perhaps, as a short-term measure, the Kishida led Japanese government should consider price controls as a way to help consumers. A price control limits how high gas prices can increase. Consumers might like it of course but suppliers will not as their profit margins are squeezed by higher prices from OPEC oil producers.

Article:

The reopening of economies after lockdowns and other anti-coronavirus measures has boosted demand for energy and raw materials such as wood and steel.

Lumber and wood prices soared 57.0 percent while iron and steel prices gained 21.8 percent. Those for nonferrous metals jumped 31.4 percent, the BOJ data showed.

Electricity, gas and water bills rose 10.9 percent. Electricity prices normally track higher oil prices with a delay.

Import prices surged 38.0 percent, also the sharpest gain since January 1981 while export prices gained 13.7 percent. Both figures are in yen terms.

Ideas:

It's only natural or the idea of supply and demand, that prices would increase with a surge in demand after maybe in during the pandemic demand for some raw materials was less than before the pandemic.

Hopefully as maybe the demand will level out the equilibrium related to supply and demand and raw material prices in future will be as high as will go back down to a reasonable level.

But the problem is now/today as companies can't wait for the global supply of raw materials to settle down and get back to some kind of reasonable level. Companies have to operate in the here and now and their profit margins can't wait for the prices to level out in six months.

As such it's quite possible, some or many of these companies will eventually have no choice but to pass all or part of their increase supply costs even though they don't want to.

Quite possible, whether good or bad, consumer prices will increase because of the passing on of costs by companies and maybe the Bank of Korea can see the 2.0 inflation rate that they have been trying to reach since around 2014. 

But it requires some good faith from consumers who might eventually accept the idea that consumer prices are increasing and they just have to live with it.

And then maybe companies can actually begin to increase the salaries of their employees which benefits the economy and then more consumer spending will take place in the economy as employees/consumers now might begin to feel a little better about their disposable income and begin to spend some of it in the economy.

But it's a balancing act among all in the economy as there are always positives and negatives with all the actions taking place at the same time.

Have a nice day and be safe!