Japan Consumer Prices:

 Article Source:

 https://mainichi.jp/english/articles/20230324/p2g/00m/0bu/018000c

Article:

TOKYO (Kyodo) -- Japan's core consumer prices rose 3.1 percent in February from a year earlier, slowing from a four-decade high as government subsidies on utility bills curbed inflationary pressure while surging food prices threaten to dampen household sentiment, government data showed Friday.

The resource-scarce nation saw the pace of gain in the key gauge of inflation slow for the first time in 13 months, providing relief to Prime Minister Fumio Kishida ahead of nationwide local elections this spring.

Ideas:

Even a 3.1 percent increase might have been too much for some households as inflation is has increased for the past 13 months which means consumers and households have seen constant increased which means any extra income they might have or had been reduced over the past 13 months.

It also means of course less spending in the economy, which of course means less sales and profits for companies as consumers reduce their spending. 

There might have been government subsidies related to household energy costs but is it was it enough to really help households.

Of course a government can only do so much and sometimes even some help can interfere in a market economy. 

Article:

Inflation has remained well above the Bank of Japan's 2 percent target for nearly a year, ensuring the Japanese central bank will likely continue to feel pressure to roll back monetary stimulus under its new governor who assumes the post in April.

The core consumer price index excluding volatile fresh food items would have risen around 4.2 percent in February without the government subsidies on electricity and gas bills, according to the Ministry of Internal Affairs and Communications.

Ideas:

The Bank of Japan's inflationary 2 percent target was never really about wholesale inflation of energy inflation or the weak yen caused inflation but about consumer demand and consumer spending inflation which really hasn't had a major impact in the Japanese economy since 2019.

So far the Bank of Japan has resisted any attempts to follow the US or the EU in increasing rates as they keep saying the Japanese economy is too fragile or weak for key interest rate increases.

Inflation in Japan is not as high as inflation in the US or the EU but because Japanese consumes are very sensitive to any price increases the Bank of Japan has so far resisted any real changes in the economy.

Article:

In January, the index rose 4.2 percent, the fastest pace of gain since 1981, highlighting the nation's sensitivity to swings in energy and commodity prices and the yen's sharp depreciation that has inflated their import costs.

Japanese households are increasingly feeling the pain of rising prices of everyday goods, as companies continue to pass on higher raw material costs to consumers. More robust wage growth to keep pace with inflation is crucial in supporting domestic demand which has so far remained resilient.

Ideas:

If and when companies do increase wages the question who is going to pay for the wage increases. 

The mindset in Japan maybe has changed as companies for a very long time were very reluctant to pass-on their cost increases to the next in the supply chain and or the final consumers. 

But as companies over the last two years have seen their profit margins continue to decrease maybe now they think they have no choice but increase prices on their products and services.

Of course consumers might not be too happy and they will most likely continue to reduce spending and or cut-back on needed products and services. 

Article:

Food prices rose 7.8 percent, the fastest pace in nearly 47 years, as higher raw material and transportation costs made a range of products from hamburgers to chocolate pricier. Egg prices surged 19.9 percent amid bird flu-related supply concerns.

Subsidies to reduce electricity and gas bills began in January, as the lagging impact of surging crude oil and natural gas prices seen last year continued to feed through.

Ideas:

As food prices continue to increase which of course means households and consumers will either cutback on their food spending and or look for substitutes at a lower price with the same quality if they can find them.

Supply concerns and eggs has even hit McDonalds and the products they offer or want to offer, which caused them to limit or reduce their menus.

Subsidies are good and needed but how much is it really helping and does it help with a households extra income that they can use in the economy for extra spending.

Article:

The government unveiled this week a fresh 2 trillion yen ($15 billion) inflation relief package that includes cash handouts to low-income families.

Energy prices dipped 0.7 percent, the first fall in nearly two years. Electricity bills fell 5.5 percent while city gas gained 16.6 percent, though at half the pace of the previous month.

Ideas:

Cash handouts are good and needed but are they a one-time offer or are they monthly handouts until inflation is under control.

Energy prices might be decreasing but are they decreasing fast enough for households to feel good about their household energy costs.

And do they see significant increases in their extra income that they can use in the economy for extra spending which of course is good for companies especially service related companies.

Article:

"Food price hikes are expected in the coming months, in a blow to households. Inflationary pressure remains strong but wages are also rising so consumption will likely be supported," said Yuichi Kodama, chief economist at the Meiji Yasuda Research Institute.

"Difficult times lie ahead until around this summer. After that, we expect slower CPI growth, because the surge in crude oil prices and the yen's weakening have paused, and food prices will likely stabilize," he added.

Ideas:

There are always positive and negative situations in an economy. In this case inflation is increasing and maybe an increase in wages can offset the inflation increase.

Inflation should not always be considered a negative situations as inflation can sometimes be related to increase in consumer demand and consumer spending.

As companies see increases in spending for their products of course they are going to increase prices to take advantage of increased consumer demand and consumer spending.

But for too long, in Japan, consumer spending and consumer demand as been weak and as never really had a major impact on the Japanese economy, even though it is estimated that consumer spending is 50 percent of GDP.

Article:

When fresh food and energy prices are excluded, so-called "core-core" CPI gained 3.5 percent, the fastest rise in 41 years.

The BOJ has said the recent spike in inflation should be temporary, given that it is largely driven by higher import costs. It forecasts core CPI will undershoot its 2 percent target later this year.

Ideas:

Even though CPI gained 3.5 percent and the fastest in 41 years, inflation in Japan has been much lower than in the US and the EU. 
In 2022 inflation in the US was estimated to have been over 10 percent while 3.5 might appear to be high in Japan is nowhere near what it was in the US.

The BOJ keeps saying inflation is only temporary but tell that to the companies and households who have live with inflation the past two years.

If you take away the weak yen and increases in energy prices what might inflation actually look like.

Now if you look at consumer spending and consumer demand, do they reach the 2 percent level that the Bank of Japan wants to see in the Japanese economy. Probably not as consumer spending is not very good at the present time due to inflation and consumers/households reducing their spending levels.

Article:

The central bank aims to ensure stable inflation accompanied by robust wage growth.

Companies have agreed to raise pay by an average of 3.8 percent during this year's wage negotiations between labor unions and management, according to the Japanese Trade Union Confederation known as Rengo. The preliminary data boosts the likelihood the final results will show the sharpest gain in three decades.

Ideas:

The Bank of Japan or the central bank in Japan is very conservative and is not going to do anything that might cause instability in the economy. 

But what it hasn't been able to do is reduce inflation enough as inflation seems to be the main challenges of course with the weak yen,

Stable inflation might be considered inflation related to consumer spending and consumer demand along with wage growth and companies passing-on their wage costs to the next in the supply chain including final consumer which would be natural situation,

Have a nice day and be safe!