Japan Wholesale Prices:

 Article Source: https://mainichi.jp/english/articles/20220516/p2g/00m/0bu/010000c

Article:

TOKYO (Kyodo) -- Wholesale prices in Japan surged 10.0 percent in April from a year earlier, marking the sharpest gain on record, amid surging energy and raw-material costs following Russia's invasion of Ukraine and the yen's steep fall, Bank of Japan data showed Monday.

The prices of goods traded between companies increased for the 14th straight month, in fresh evidence of inflationary pressures in Japan, reinforcing the view that consumer inflation will further accelerate in the coming months.

The 10.0 percent gain was the fastest since comparable data became available in 1981.

Surging energy and raw-material costs are threatening to eat into corporate profits unless they are passed on to consumers. A growing number of companies are raising prices in line with increasing costs, while consumers are starting to feel the pinch.

Ideas:

Wholesale companies are not responsible for the increase in prices as the increase in raw materials and energy costs are external and not internal or generated in the Japanese economy.

But that the same time, as companies see their profit margins continue to get thinner and thinner they have no choice but to now pass some or all of their costs onto the next in the supply chain which might include the final consumer.

Inflation in Japan may be lower than what is happening in other countries but even a 10 percent gain is more than consumers have seen in Japan for a very long time.

A 10 percent gain might not be much for some or many consumers but for the lower income groups and the fixed income groups it might mean a lot if its related to everyday products such eggs, milk, bread, rice, tea, or anything else that consmers buy on a daily or weekly basis.

Article:

Prices of petroleum and coal products jumped 30.9 percent as Russia's war in Ukraine raised supply concerns. Raw materials that saw price hikes included iron and steel, up 29.9 percent, along with lumber and wood products, up 56.4 percent. Nonferrous metals surged 25.0 percent.

The war in Ukraine also affected beverage and food prices, which climbed 3.7 percent. Prices of grain such as wheat grew sharply as both Russia and Ukraine are major producers.

"The rise in wholesale prices was surprisingly large, amplified by the yen's sharp depreciation since March," said Hideo Kumano, executive chief economist at the Dai-ichi Life Research Institute.

Ideas:

Raw material prices such as those listed above might be materials that are used by manufacturing companies and as their material costs increase most likely they are going to pass on some or all of their costs in order to maintain their profit margins.

Food and beverage price increases might not be passed on as easily as consumers might be very senstive related to food or beverages, but overtime, if the companies keep seeing increases they to will begin to pass on even more even though they know their customers are price sensitive and have no choice.

And of course even as raw material prices from products are imported they now have to worry about the weak yen which means import prices are going to be even higher in the future.

Larg companies can probably ride out the weak yen and have enough resourcs or reserves to handle the weak yen and the increase in import prices but small and medium sized companies might not have the resources or reserves needed to overcome the combination of a weak yen and the increase in import prices and will have no choice but to pass on their costs to whomever is next in the supply chain, which might be the final consumer.

Article:

"The negatives of the weak yen appear to be outweighing the positives (for the economy). The core consumer price index is almost certain to hit 2 percent...it is yet another difficult time for consumers whose sentiment has been improving as the COVID-19 situation stabilizes," Kumano said.

BOJ Governor Haruhiko Kuroda expects the recent bout of commodity-driven inflation will likely push consumer inflation toward the central bank's 2 percent target. But he has ruled out the BOJ joining its U.S. and European peers in transitioning to tighter monetary policy.

The yen's sharp depreciation, reflecting such policy divergence, also boosted import costs to the detriment of resource-poor Japan. Import prices surged 44.6 percent from a year earlier, compared with a 17.3 percent advance in export prices, both in yen terms, the BOJ data showed.

Ideas:

A weak yen has always been a positive for the Japanease economy as its mostly a export focused economy as a weak yen brings more into the Japanese current account with higher prices for Japanese products abroad.

And in normal times, if raw material and energy prices were at their normal levels the weak yen would not be a burden for importers and they could probably ride through the weak yen without much of a problem.

But now add the increases in energy prices and increaes in raw material increase which of course are mostly imported means the weak yen has now made those prices even higher which means they are now a major challenge for import companies, when before they weren't.

It must be remembered that the 2 percent target of the BOJ was never increases in commodity prices or wholesale prices but consumer demand prices.

And yes these of course are driving up consumer prices but its not what the BOJ intended related to its 2 percent goal.

The goal has always been consumer demand and consumer spending as a strategy to increase economic growth.

The 2 percent now effecting the Japanese economy is not going to produce any economic growth but most likely will decrease growth.

And any kind of key rate increase is going to decrease economic growth even more as what is predicted in the US now with the talk of a recession and the key rate increases might stall the US economy.

Article:

"We will need to closely monitor the impact of the COVID-19 pandemic and the Ukraine situation on commodity prices as well as domestic demand and supply," a BOJ official said.

Soaring raw material costs have clouded the outlook for manufacturers such as automakers despite the benefits of the earnings-boosting depreciation of the yen.

Toyota Motor Corp. estimates a whopping 1.45 trillion yen ($11 billion) negative impact from higher material costs on an operating basis in fiscal 2022 from April.

Ideas:

In years past, when it was just a weak yen, Toyota and other manufacturing and export companies had a huge advantage related to profits earned from higher prices earned overseas.

But these day because of increases in material costs and energy cost increases companies like Toyota might actually be seeing decreasing profits.

But you would think, large companies still have the resources and reserves to outlast the latest challenges from the increase in energy and material cost increases. Their profits might be down but they might be able to easily ride out the current challenges while some small and medium sized companies might not have the same reserves as the large companies do.

At this point it might be a good time for the Japanese government to begin to think what they can do to help small and medium sized companies ride out the current increases in prices.

Article:

So far, consumer inflation has been picking up at a much slower pace than wholesale prices in Japan. The core CPI, excluding volatile fresh food items, rose 0.8 percent in March from a year earlier, with the April data due out Friday.

Some BOJ board members have expressed concern that households have already begun to perceive inflation at a faster pace than the actual rise, warning that they would become pessimistic with wage growth not keeping pace.

"Pressure could build further on the BOJ if more politicians start to take issue with accelerating inflation in the run-up to the House of Councillors election (in July)," Kumano said.

Ideas:

This kind of consumer inflation is not the kind the BOJ is/was looking for. They aren't looking for consumer inflation related to increases in energy or raw material prices being passed on the final consumer meaning CPI and other measurements showing higher prices for consumers.

What they want or need is an increase in consumer demand as consumer feel good about spending in the economy and as consumer demand increases companies will increase prices which is normal supply and demand.

But if wages are not going to increase this year, as companies feel the material price increases, they will be very reluctant to increase wages for their employees as their profit margins are getting thinner and thinner from the material price increases.

Which means of course consumers/employees are not going to feel good about the economy and their sentiment or feeling is going to be even worse which of course means even less spending in the economy overall.

But the BOJ has already stated they are not going to match what the US or the EU is doing by increasing the key rate as Kuroda and company feel it will be too much for an already weak economy.

For example, even in the US they are talking about a recession now because of maybe the rate increases are going to be too much for the US economy.

Have a nice day and be safe!