Japan Core Consumer Prices:

 Article Source: https://mainichi.jp/english/articles/20220920/p2g/00m/0bu/017000c

Article:

TOKYO (Kyodo) -- Japan's core consumer prices surged 2.8 percent to a nearly eight-year high in August, in the latest sign of cost-push inflation accelerated by a weak yen to the detriment of consumers, government data showed Tuesday, heaping pressure on the dovish Bank of Japan.

The nationwide core consumer price index, which excludes volatile fresh food items, stayed above the BOJ's 2 percent target for the fifth straight month, with the pace of increase accelerating from 2.4 percent in July.

The key index of Japanese inflation accelerated at a pace unseen since September 1991, when the effects of consumption tax hikes are excluded, according to the Ministry of Internal Affairs and Communications.

Ideas:

Japan's core consumer prices might have surged 2.8 percent but its not in any way related to consumer demand or consumer inflation.

Yes companies are pushing or passing on their supply costs to the next in the supply chain, which might be the final consumer but its not really what the Bank of Japan wanted in reaching to 2 percent level.

Producers, suppliers, and importers not only do they now have to contend with raw material and energy cost increases now they have to contend with the weak yen which makes import products even more costly, which of course means consumers will see the effects of both.

The Bank of Japan and the Japanese government keep talking about what to do about the yen, but so far not much as been done or what has been done hasn't had much of an effect yet.

Article:

The BOJ has taken the view that the recent bout of inflation should only be temporary because it is mainly due to higher energy and raw material costs, going against the global trend of monetary tightening. Still, pressure will likely grow on the BOJ as economists expect the headline figure to top 3 percent this year.

The core CPI, which marked the steepest gain since 2.9 percent in October 2014 following a consumption tax hike from 5 to 8 percent in April that year, marked the 12th straight month of year-on-year growth.

"What is striking is the impact of the weaker yen is getting bigger and bigger, while we have seen food prices also rising," said Yoshiki Shinke, senior executive economist at the Dai-ichi Life Research Institute.

Ideas:

As written before just what does the BOJ think temporary is. Is it three months, 6 month, or one year?

The key phrase is "should only be temporary" as maybe the BOJ really doesn't know exactly as estimating what inflation will be and level off is very hard to estimate.

As OPEC has recently said they are going to reduce supply despite the Ukraine/Russia situation it might keep energy prices high as anytime there is a shortage prices increase.

The impact of the yen is most likely affecting more and more consumers and more and more businesses in Japan and as such prices are going to continue to remain high for some time.

Which then means less and less economic activity as consumers spend less, businesses invest and less, which then means less economic growth.

The export sector, which favors a weak yen is most likely too is going to slow down as global trade and the global economy slows down.

The IMF recently said the Japanese economy might grow 1.6 percent in 2023. But as the situation is now the Japanese economy might not get even close to that.

Ideas:

The yen has been falling sharply against the U.S. dollar, reflecting the divergent policy paths of the BOJ and the U.S. Federal Reserve. Both central banks are scheduled to hold policy-settings meeting this week.

The weaker yen has inflated the costs of imported crude oil and other energy sources, raw materials and food items, threatening to dent consumer sentiment despite government efforts to ease the pain.

A growing number of Japanese companies appear to have been passing on higher costs to consumers by raising retail prices, a positive development for the BOJ as it has been.. ( sorry inadvertently cut the last sentence).

Ideas:

The weak yen is not just threatening but most likely has already caused a decrease in consumer spending over time.

Japanese consumers are not used to such large increases in prices, anymore than anywhere else in the world right now.

The Bank of Japan might fear the side-effects related to increasing the key interest rate but right now there are already many side effect taking place even though the key rate hasn't been increased in Japan.

Most likely most companies have passed on some or all of their cost increases as a way to maintain their profit margins.

An increase in prices by companies usually have been a sign of improved consumer demand or consumer spending and again, this is not what the BOJ wanted to see to reach their 2 percent goal.

Article:

Energy prices jumped 16.9 percent from a year earlier, with those for electricity gaining 21.5 percent as they track crude oil and natural gas prices with a lag. Kerosene prices increased 18.0 percent and gasoline gained 6.9 percent, both slowing from a month earlier. They would have risen higher without government subsidies to oil wholesalers to lower retail prices.

Food prices, excluding perishables, gained 4.1 percent, the largest increase in nearly eight years, with more price hikes in the offing in the coming months.

Prices for durable goods, such as refrigerators and air conditioners, were up 6.3 percent, reflecting higher raw material prices and transport costs.

Ideas:

As prices continue to increase, consumers will have less and less disposable income to spend outside the home. As they have less and less disposable income it begins to affect many parts of the economy at the same time.

Hopefully the government can find ways to increase the subsidies to not only oil wholesalers but other import companies too.

There is a synergistic effect in that as one par to the economy starts having challenges it moves to other parts of the economy.

As import prices increase they pass on their cost increases to the next in the supply chain, which then passes on their price increases to the next as so on.

So the final consumer sees price increases in many things and as a delays purchases and or maybe finds substitutes at a lower price if possible, which means many sectors and businesses are all effected at the same or similar time. It become a chain reaction that is very hard to slow down.

Article:

Inflation is picking up pace at a much slower speed in Japan than in the United States and Europe. But Japanese consumers are sensitive to price hikes at a time when wages are not rising much, clouding the outlook for the Japanese economy as its recovery from the COVID-19 pandemic fallout has been relatively slow.

"Cost-push inflation will not last forever but rising prices are still negative for consumers," Shinke said.

He expects the core CPI to rise by 3 percent from a year earlier in September or October, adding that uncertainty remains over any impact from the government's envisaged discount program to spur tourism nationwide.

Ideas:
Inflation might be increasing at a slower rate compared to the US and the EU but for some consumers it might be too much already as even a slight increase might be too much for some families as again wages have not risen for a very long time and as prices increase disposable incomes of families get less and less.

Its there a way to define relatively slow in terms of recovery? Just what industries or sectors besides the international tourism industry that is still not so good? Maybe its not fair to compare now, 2022, with 2019 and many things were strong then or somewhat despite the sales tax increase and the typhoons that hit Japan in the fall of 2019.

Economies and sectors in an economy always go through positive and negative cycles and it might not be correct or fair to say that what is happening now is still related the the 2020 pandemic situation.

Once a company increases prices they usually don't lower the price for some time, so Japanese consumer should not expect prices to return to a level they want to see as companies will keep the same prices to maintain or increase their profit margins even if inflation levels off or even slows down such as raw material and energy cost begin to decrease over time.

Related to the  discount program or travel program it seems, looking at hotel prices in the Tokyo and Kanagawa areas the hotels have increased their prices. Part of it might be an increase in their costs being passed on to the consumer and part of it might be an increase in prices related to an increase in demand as more domestic travelers are now moving around.

One hotel mentions the idea of a 40 percent discount with the/a coupon related to the travel program The idea that hotels might have increased their prices just to maintain their profits is not unheard of, even though they are being subsidized by the Japanese government to participate in the program. Its also not unheard of, in big events for companies to increase prices when they know demand is going to increase a lot.

Article;

So-called core-core CPI, which excludes both energy and fresh food items, increased 1.6 percent, up for the fifth straight month.

Part of the steep gain in the inflation figure came as the year-on-year effect of sharply lower mobile phone fees continued to dissipate, with the relevant figure down 14.4 percent from a year earlier. Major mobile carriers began offering cheaper plans in 2021 amid mounting government pressure.

Ideas:

Even though major mobile carriers might be decreasing their plans to consumers, to maintain their profit margins they probably have already increased the prices of many other services or products they offer.

When a consumer see an increase of 1.6 percent in the news or read about it, it means nothing to them until they begin to experience the increase or increases in the supermarkets, restaurants,  the conbinis, the departments, and of course online shopping.

Numbers and statistics mean nothing to the consumer again until they start to feel it and experience it with less and less disposable income each month.

Inflation is very individual in that not everyone buys the same things or wants to same things.

Some consumers might feel a huge increase in many products they want or buy and some might not feel as much stress related to what they want or buy.

So just because there might have been a  1.6 percent increase doesn't mean all or anyone really felt or saw the change. Some might and some might not have depending on of course their income level and their spending habits.

Have a nice day and be safe!