Japan's Core Consumer Prices:

 Article Source:  https://mainichi.jp/english/articles/20220318/p2g/00m/0bu/024000c

Article:

TOKYO (Kyodo) -- Japan's core consumer prices in February rose 0.6 percent from a year earlier as energy costs surged at the fastest pace in 41 years due to higher oil prices, government data showed Friday, suggesting further increases amid the fallout from the Ukraine crisis.

The nationwide core consumer price index, excluding volatile fresh food items, advanced for the sixth straight month following a 0.2 percent rise in January, the Ministry of Internal Affairs and Communications said.

Energy costs such as gasoline and electricity soared 20.5 percent, the steepest rise since January 1981, reflecting higher crude oil prices amid the global economic recovery from the coronavirus pandemic. The figure compared with a 17.9 percent increase in the previous month.
Ideas:

Japan's core CPI prices most likely will continue to increase becuase global inflation seems to be a major challenge now for many countries.

Global energy prices don't seem to be falling or going away as they seem to here to stay for a while.

The question is are Japanese companies now willing to pass on their increased costs to the next in the supply chain or are they going to just accept the increased costs meaning thinner profit margins for now and the future.

The core CPI with an increase of only 0.2 percent, in itself, is still not bad, but it could get worse in the future.

Article:

Electricity bills, which normally take several months to reflect oil prices, jumped 19.7 percent, the biggest rise since March 1981. Prices for kerosene and gasoline climbed 33.5 percent and 22.2 percent, respectively.

Japan depends on energy imports and the recent sharp depreciation of the yen has inflated costs.

The uptrend in energy prices could accelerate in March and after, affected by further advances in gas and oil prices due to the Russian invasion of Ukraine, a ministry official suggested.

Ideas:

Japan for a long time maybe didn't feel or see the global prices changes that many other countries were experiencing. But now it seems Japan too has seening the kind of inflation increases the rest of the world is seeing.

So again, are companies, like usual, going to absorb the prices increases they incur or are they going to begin to pass on some of the increased cost to the next in the supply chain which means of course it might reach the final consumer.

An increase of 19.7 percent in electricity bills might not be much for some or many for the low-income earners and those on fixed incomes it could be too much.

So what is the Japanese government going to do about how the higher energy prices might affect some groups in Japan. Are they going to provide some kind of subsidy to help low-income groups. Are they going to give subsidies to energy providers as a way to not pass on their increased costs to the next in the supply chain.

Article:

Food prices increased 1.6 percent, partly due to rising wheat prices that have made bread more expensive. Potato chip prices were also up amid higher food oil and logistics costs, the official said.

Mobile phone fees sank 53.6 percent after major Japanese carriers lowered them in the spring of last year at the request of the government.

Stripping the drag from mobile communication fees, core CPI climbed to around 2 percent in the reporting month, hitting the Bank of Japan's inflation target, some analysts said.

Ideas:

An increase of 1.6 for food prices again might not be much for some groups and maybe some groups might not even notice or care that much. But for some groups it could be too much, as maybe some consumers might be price sensitive to some kinds of products and now will begin to look for subsitute products with the same value.

Logistics costs will continue to go up because of the lock down situation going on in China, as products in and out of China are not moving. And then add in the continued increase in shipping costs since the pandemic will continue to put pressure on prices. 

And then add in the increase energy costs of containers ships and others and prices are going to continue to go up.

Mobile phone fees might be going decreasing but mobile phone carriers will find ways to maintain their profit margins with prices increases in other services or products.

Article:

But Takeshi Minami, chief economist at the Norinchukin Research Institute, said, "The core CPI's rise does not necessarily mean that consumer demand is strong."

"Being hit by the yen's depreciation as well as high raw material and fuel costs, companies have been forced to raise prices to stay in the black," he said.

Minami expects the core CPI to surpass 2 percent in the middle of 2022, after the impact of lower mobile phone fees falls out of the year-on-year comparison in the data.

Ideas:

The core CPI prices increases doesn't always correlate with an increase in consumer demand as Japan has always had a challenge with consumer spending.

So the situation is not related to an increase in consumer spending but more of an increase in supplier inflation, with some of it related to costs most likely being passed on to the consumer.

Because of increases in raw material prices, feul/energy prices and companies now being forced to pass on their incresed costs to the consumer, consumer demand is not going to be as strong as it should be becasue consumers now have less extra income to spend and will seek out substitute products and or cut back selectively and only buy what they need.

Just because the core CPI reaches the 2 percent level doesn't mean that it has reached the Bank of Japan's goal of 2.0 percent inflation as the inflation is mostly related to supplier cost increases and not an increase in consumer spending.

Article.

Higher inflation due to fuel costs would drive speculation among investors that the BOJ may scale back its aggressive monetary easing, he said.

The so-called core-core CPI, which excludes both fresh food and energy prices, declined 1.0 percent from a year earlier, falling for the 11th consecutive month.

Ideas:

Most central banks and the US Federal Reserve seem to think that increasing the key interest rate is the best way to solve the inflation problem facing many countries now.

But the problem with increasing the key rate is it places a lot stress on some groups in an economy.

If a company needs a loan now because of its increase in raw materials or because of an increase in energy costs, in order to get through the next six months, now it has to pay even more putting even more stress on companies.

If a family just got a new home and now has a mortgage they now have to pay even more for that new home because of the higher interest rate.

If a family needs an emergency loan for something they now have to pay even more which again places even more stress on the family.

So the Bank of Japan needs to not follow what other central banks are doing as increasing the key interest rate might not be in the best interest of the Japanease economy and Japanese society.

It be better for the Japanese government and the Bank of Japan to provide needed subsidies as many families and many businesses are still not back to the pre-pandemic level

Once international tourism can get back to the pre-pandemic level then maybe the Bank of Japan can begin to think about scale back its monetary policy and begin to follow what other central banks are doing to reduce inflation.

Have a nice day and be safe!