Japan Inflation:

 Article Source:   https://mainichi.jp/english/articles/20220520/p2g/00m/0bu/024000c

Article:

TOKYO (Kyodo) -- Japan's consumer inflation in April accelerated 2.1 percent from a year earlier, as higher commodity prices and a weak yen helped lift the key figure to a seven-year high and above the Bank of Japan's 2 percent target for the first time since 2015, government data showed Friday.

The steep rise in the core consumer price index came as the effect of sharply lower mobile communication fees -- a big drag for months -- began to fall out of the inflation data. The figure compared with a 0.8 percent increase in March and marked eight straight months of gain.

The war in Ukraine has sent prices of energy, including crude oil, as well as raw materials higher, adding inflationary pressures to resource-poor Japan. While economists say the commodity-led inflation is likely to continue for months, the BOJ is expected to see the rise as temporary and persist with monetary easing.

Ideas:

Japan's inflation rate of 2.1 percent is much lower than most countries. But it must be remembered that the 2.1 percent is not real consumer inflation or consumer demand or consumer spending inflation but supplier cost inflation which is very different.

So we really can't say, yet, that the Bank of Japan has reached its target goal of 2 percent inflation as it really has nothing to with consumer spending, which is really what the BOJ has wanted and not supplier cost inflation.

Lower mobile fees are both a positive and a negative. For consumers of course its very much a positive and for mobile carriers it can be negative. Mobile carriers, like any business, will find ways to maintain their profit margins by increasing prices releated to other products or services. 

The Ukraine war only accelerated the increase in commodity-led inflation as it has been slowly increasing during the pandemic and now is somewhat out of control globally.

Article:

The core CPI, excluding volatile fresh food items, was last above 2 percent in March 2015, in the aftermath of a consumption tax hike to 8 percent from 5 percent, according to the Ministry of Internal Affairs and Communications.

Apart from the tax hike impact, September 2008 was the last time the closely watched gauge of inflation was above 2 percent, meaning that it is the first time that the threshold has been crossed without a tax effect since the BOJ launched powerful monetary easing under its current governor, who took the post in 2013.

"The headline figure is above the BOJ's 2 percent target but it doesn't mean that its goal has been achieved in a real sense. The economy is facing downside risks, with higher commodity prices hurting consumer spending," said Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute.

Ideas:

The core CPI is something to be concrned or think about, maybe for economists, but for the average consumer it might not mean much. What matters to them is their daily/weekly spending that is needed and how much.

So some products they might buy have risen some, and some might not at all, and then some maybe a lot is what matters to the average family or household. The only numbers they care about is the price they see on products in the supermarkets.

But to be fair, consumers have gotten used to lower prices on things compared to some consumers globally. So now, because of the increase in supplier prices now being passed on to others in the supply chain and then the final consumer, consumer maybe are a little worried about how much more prices are going to increase.

In 2014 when the tax increase went from 5 to 8 percent and then in 2019 when the tax increase went from 8 to 10 percent consumers were preparing ahead of time with a lot of  consumer spending before the tax increases and then for a short time consumer spending decreased a while after the tax increase. But then, as usual, consumers got used to the extra price increases and went back to spending as normal, or normal for Japan.

Article:

Energy prices surged 19.1 percent, with gasoline, kerosene, city gas and electricity bills all marking double-digit jumps. Gasoline was up 15.7 percent and kerosene 26.1 percent, though government subsidies to wholesalers to bring down retail prices helped ease the upward pressure.

Mobile communication fees were down 22.5 percent in April but the pace of decline slowed from 52.7 percent a month earlier.

"The basic price trend is the same as before. But what is striking this time is that food prices are trending higher amid supply concerns related to the situation in Ukraine," Kodama said, comparing the current situation to the last time the core CPI was above 2 percent in 2008.

Ideas:

Energy prices keep increasing but are the government subsidies to wholesalers enough to keep them from continuing to pass on their costs to the next in the supply chain. There should maybe be some kind of sliding scale, meaning as wholesale prices continue to increase the government should continue to increase the subsidies to help the economy.

The Japanese economy, for the most part, might be seeing the pandemic ending but we have another crisis related to inflation. As energy prices continue to increase the Japanese government should continue to help whomever with subidies and or more government spending.

If companies/businesses are seeing increases in their costs, they may or may not pass on their costs to the next in the supply chain as they are often reluctant to pass on their costs. 

So now their profit margins are decreasing which means they have little or no room for salary increases for their employees and or no room for capital spending projects or investments in the future.

And so now company employees, who are consumers, have less to use or spend in the economy as they are being squeezed by increasing gasoline prices, increasing supermarket prices, and increasing home energy prices. 

As a result there will now be even less consumer spending in the Japanese economy, and the BOJ's target of 2 percent consumer inflation is not going to be reached anytime soon.

Article:

Even without perishables, food prices gained 2.6 percent in April, the fastest pace since 2015, with wheat, meat, coffee beans and cooking oil among those affected. Of the 176 items surveyed, 127 saw higher prices, the ministry said.

With a core CPI reading above 2 percent widely expected, the BOJ shot down speculation it would tweak its monetary policy. Governor Haruhiko Kuroda has said the central bank is aiming for sustainable inflation that is accompanied by strong wage growth, not inflation led by temporary increases in commodity prices.

The price gains come at a delicate time for Japan where consumers are not fully confident of an economic recovery from COVID-19, and politicians are wary of price-sensitive voters ahead of the House of Councillors election in July.

Ideas:

What the BOJ wants and what is happening is very much different. The CPI is not an accurate picture of consumer spending which is what the BOJ wants to see. Its only a picture of supplier prices increasing, and in this case suppliers passing on their costs becasue they need to maintain their profit margins and can't afford to absorb all of their price increases.

In normal times, if consumer spending was significantly increasing then suppliers might increase their prices as demand for their prices are increasing. But in this case that is not what is happening. Consumer demand is not increasing but supplier prices are increasing.

With all due respect to Kuroda and what he wants to do and what he expects, it doesn't seem likely that companies are going to increase wages anytime soon or not enough companies are not going to increase wages to the point they have an impact on consumer spending or inflation overall.

But Kuroda and the BOJ is correct, at this time, to maintain its current policy are there are still too many negatives in the Japaneae economy and society from the pademic and not the inflation situation which is making the situation even worse.

If the Japanese government and the BOJ were really concerned with getting the economy back to normal and seeing inflation at the 2 percent level, meaning consumer demand inflation, they really need to open the floodgates and let regular tourists into the country and let them go where they want and spend.

The tour-group situation, might be good for maintaining control over what is left of the pandemic but its not going to have a signifcant effect on the the Japanese economy. 

Over 31 million tourists came to Japan in 2019 which meant a significant amount of money moving through the country. 

The normal Japanese consumer is not going to spend enough to significantly help the economy, with all the cost restraints they have now.

With the weak yen, international tourists can come in and make up the difference and provide the needed spark the Japanese economy needs at this time.

Article:

The rapid depreciation of the yen, which has fallen to 20-year lows against the U.S. dollar, has proven a headache for Japan as it has boosted import costs.

"Raw material prices had already been rising (helped by a global economic recovery and supply shortages) and the weaker yen magnified the impact," a ministry official said.

The BOJ's strong commitment to ultraeasy monetary policy contrasts with its U.S. and European counterparts that are dialing back stimulus to rein in sharp gains in prices.

The so-called core-core CPI, excluding both energy and fresh food prices, gained 0.8 percent, marking the first rise since July 2020.

Ideas:

The weak yen might be a challenge for parts of the economy but its also a positive for exporters whose prices are higher globally. which brings more money into the Japan current account.

The Japanease government can always use price controls, as needed, to keep prices low on needed daily products, such as bread, milk, eggs, meat and so on and they provide subsidies to importers and wholesalers to help them keep their profit margins at a normal level.

The BOJ is correct in what its doing as there are too many negative variables in the Japanese economy that would be effected by a rate hike increase.

For example those who have exisiting loans would now have pay even more. A small business that needs a loan because their supply costs are getting too high would not have to pay more. A family who needs a houshold loan would now have to pay more and so on.

A rate increase would have a multipier effect in causing many more contraints on the Japaneae economy at this time.

Have a nice day and be safe!