Japan Consumer Prices:

 Article Source:

 https://mainichi.jp/english/articles/20230224/p2g/00m/0bu/018000c

Article: 

TOKYO (Kyodo) -- Core consumer prices in Japan jumped 4.2 percent in January from a year earlier, rising at the fastest pace since September 1981 on higher energy and food prices, government data showed Friday.

Excluding volatile fresh food items, the core consumer price index was above the Bank of Japan's 2 percent inflation target for the 10th straight month, the Ministry of Internal Affairs and Communications said, though the central bank views the trend as temporary.

The ministry said that due to the government's decision to subsidize utility bills for consumers, electricity and gas prices are expected to be lower in February.

Ideas:

The Bank of Japan might view the trend as temporary but what about the Japanese consumer who have to live with the high prices. 

The BOJ can say what they want of course but the Japanese consumer has to live with the constant increase in prices each and every month. 

At the same time its good that the Japanese government is subsidizing utility bills to help the average consumer overcome the high energy and utility prices.

The Bank of Japan's inflation target of 2 percent of course was/is more concerned with consumer demand and consumer spending with the idea as consumers spent more and demand became higher inflation would naturally increase.

Article:

The impact on the index of further hikes in food prices expected from February will likely be offset by the reduced electricity and gas prices, an official from the ministry said.

In January, energy prices rose 14.6 percent, with electricity and city gas climbing 20.2 percent and 35.2 percent, respectively.

Food prices went up 7.4 percent, including for products such as fried chicken, potato chips, and hamburgers, as companies passed on the increase in raw material, transportation fees and other costs to consumers.

Ideas:

Japanese companies, for a very long time, were reluctant to pass-on their increased costs to the next in the supply chain even the final consumer. 

But now maybe companies can no longer hold their profit margins at a reasonable level and now they have no choice but to pass-on their costs.

Food prices in Japan, for the most part, have always been reasonable but now for some, they aren't as reasonable as before. 

As a result some consumers will be more selective in what they buy and maybe try to find substitutes a a lower price with the same quality if possible.

But there are always trade-offs in a market economy. What's good for one maybe is a challenge for another. So while some products and companies might see it as a challenge, that might mean better opportunities for other companies. 

Article:

January's inflation rate advanced from 4.0 percent marked in December last year as the government's subsidy program to spur the tourism sector was trimmed in the reporting month, resulting in a smaller fall in accommodation fees.

Japan has seen inflation grow, as the weaker yen coupled with the Bank of Japan's ultraeasy monetary easing policy has raised import costs. Russia's war against Ukraine and the consequent disruption to supply chains have pushed up raw materials and energy costs.

The BOJ has maintained its monetary easing policy because the 2 percent inflation target has yet to be achieved in a "stable and sustainable fashion," accompanied by wage growth.

Ideas:

Observing hotel rates, in Yokohama for example, it seems all hotels have increase their rates, and maybe they are trying to make up for lost revenue during the pandemic and or course maintain their profit margin with the higher energy prices and as such they have had to increase their overall prices..

Japanese consumers are not used to inflation or the constant increase in prices. As a result, consumer sentiment, or feeling, or the willingness to spend will be less because of the constant increase in prices. 

As a result the BOJ's 2 percent target related to natural consumer demand and consumer spending might not be reached anytime soon. 

Wage growth is the key to getting Japanese consumers to spend again to the point that it affect the BOJ's 2 percent target.

Article:

BOJ governor nominee Kazuo Ueda told a confirmation hearing in parliament on Friday the central bank's 2 percent inflation target is still far off and that he will maintain monetary easing to support the economy if appointed the bank's chief as successor to incumbent Haruhiko Kuroda, whose term is set to end in April.

Takeshi Minami, chief economist at the Norinchukin Research Institute, said companies are likely to remain under pressure through June to increase prices on foods and daily items.

Ideas:

The BOJ's 2 percent target will not be reached until consumers feel good about spending again, and in order for them to feel good, they need more wage growth from the companies. 

As companies' profit margins continue to shrink due to increased material costs they will continue to pass-on their costs to whomever is next in the supply chain, whether a company or the final consumer.

As a result consumer spending it not going to be where it should be in the near-future as some consumers might not spend as much as they would have before the pandemic and the current inflation situation.

Article:

But "the core CPI could fall below 2 percent by the end of 2023," Minami said.

"Pressure on the retail sector to increase prices would likely ease as spending momentum is also weakened due to the price hikes," he said, adding that many businesses have also been adapting to rises in raw materials and other costs since Russia's invasion of Ukraine started a year ago.

Ideas:

The core CPI is just an average number as it really doesn't show what consumer feel or think as for some consumer prices on what they need and buy might be above be 2 percent level while for some consumers it might be below what they buy and need.

Regular supply and demand, in theory, might have some play here, as prices increase consumers spend less. But of course it all depends on what they need and want.

And they can of course try to find substitutes for product that become too high if they can find them.

Have a nice day and be safe!