Japan Consumer Inflation.

 Article Source:https://mainichi.jp/english/articles/20230421/p2g/00m/0bu/019000c

Article:

TOKYO (Kyodo) -- Consumer inflation in Japan accelerated to 3.0 percent in fiscal 2022 through March, the fastest pace in 41 years and above the Bank of Japan's 2 percent target, in what the central bank views as a blip caused by higher import costs and a weaker yen, government data showed Friday.

In March, the nationwide core consumer price index, excluding volatile fresh food items, climbed 3.1 percent from a year earlier. Government energy subsidies helped eased some inflationary pressures but the key gauge of inflation still remained above the BOJ target for a year.

Ideas:

The increase in consumer inflation might not have been a "blip" as  described by the Bank of Japan as it seems inflation since the pandemic has been steadily increasing.

Most central banks, such as the Bank of Japan, want to keep inflation between 2 and 4 percent as they its manageable or controllable, but when it reaches 3 percent all central banks seems to get worried that its out of control or too much.

The BOJ 2 percent target is/was more about consumer demand and consumer spending and not so much about overall inflation such as companies "passing- on their costs to the next int supply chain or the final consumer.

Article:

Japan has seen more evidence of broadening price hikes as companies are passing on higher costs to consumers. Prices are expected to rise further in coming months, especially for food items, in a blow to households.

The last time the core CPI rose as sharply as the previous business year was in fiscal 1981 when it increased 4.0 percent.

The BOJ expects the core CPI will undershoot 2 percent in fiscal 2023 from April as the year-on-year effect will peter out. New Governor Kazuo Ueda, who will hold his first policy-setting meeting next week, has said ultralow rates are necessary to promote more wage hikes by companies.

Ideas:

It took many years for many Japanese companies to finally begin to pass on their costs to consumer as they were reluctant for fear of losing customers.

And now as the profit margins continue to shrink now they feel they have no choice but to pass on their costs as needed to keep their profit margins stable.

The BOJ might think prices are going to stabilize but tell that to a family or household as see if they believe it as their monthly costs keep increasing.

The ultra low rate is important for many reasons but I'm not sure if companies think its important for the wage increases that are needed in Japan.

Article:

Both food and energy prices saw their sharpest gains since 1980.

Food prices jumped 5.4 percent while energy prices, including for kerosene and gasoline, surged 12.8 percent, the Ministry of Internal Affairs and Communications said.

In March alone, however, energy prices dropped 3.8 percent, as the government is curbing utility bills.

Ideas:

As a comparison, food prices in Seoul South Korea are the highest in the world or one of the highest while in Japan food prices are still relatively cheaper including supermarket prices.

So even though family, households, and individuals might think food prices have gone up a lot they are no where near the level of increase in Seoul.

Energy and utility prices might now begin to see a sustained decrease as the government might has/have actually curbed the increase in energy prices or been able to maintain a price level that might be affordable for many households.

Article:

Without government efforts to lower prices for electricity, city gas, gasoline and kerosene, the core CPI would have risen around 4 percent in March, according to the ministry.

So-called core-core CPI, excluding both fresh food and energy prices, leaped 3.8 percent.

The BOJ is scheduled to release a fresh outlook report on inflation and economic growth at the end of the policy meeting on April 28. The central bank is considering forecasting the core CPI will rise around 2 percent in fiscal 2025, sources familiar with the matter said earlier.

Ideas:

A 4 percent increase, yes a lot, for some might not be  big deal, but for those on low or fixed incomes it can mean a lot. 

It means of course they now have to limit their spending on other items such as quality food purchases.

Forecasts are nothing more than guess or educated guesses as to what the future might be related to in this case the economy.

But for the average consumer do they really care about next year as they are now focused on what is happening today and can they get through the next month.

Article:

"The underlying price trend is strengthening and households are increasingly feeling it, too," said Saisuke Sakai, a senior economist at Mizuho Research & Technologies.

Mizuho expects the core CPI to continue rising around 3 percent year-on-year in the coming months, projecting that real wages will not turn positive until the latter half of fiscal 2023 despite robust pay hikes promised during annual labor-management negotiations for the year.

Ideas:

Prices are continuing to increase and as such consumers are most likely are going to have to make choices or trade-offs on what they think is important and not important for their weekly and monthly buying needs.

Wage increases most likely were only related to large companies and maybe not even all large companies. So that means maybe most small and medium sized companies were either not able to increase wages and or unwilling to increase wages.

What that means is of course, not all wage earners in Japan didn't get a wage increase. 

So lets say the large companies make-up  10 percent of wage earners in Japan, that means maybe 90 percent of wage earners in Japan didn't see a wage increase which of course might mean consumer spending might not increase that much if at all.

Article:

"While the pace is still limited, price increases are also seen in the services sector, which are also due largely to rising raw material costs. In the longer term, service providers will have to continue coping with labor shortages and pass on higher fixed costs (for securing labor) to consumers," Sakai added.

Financial markets expect the BOJ, which appears in no hurry to raise interest rates, will have to tweak its policy as the side-effects of protracted monetary easing have emerged. Critics see the need to make its goal of attaining 2 percent inflation as soon as possible more flexible.st

Ideas:

The pace or increase in prices might seem limited but tell that to the average family and how much their month energy and food costs have increase this year so far. 

The services sector is in a not so good position as maybe because of the pandemic and having to lay-off or let go a lot of workers they now have a labor shortage and maybe the only way to get them to come back or fill those positions they will have to pay even higher wages to get people to work.

What is maybe happening now. for example in Yokohama, as I survey many hotels, they have increased their rates as maybe a way to make up for lost revenue during the pandemic and or as tourists, domestic and international return they anticipate a surge in demand as usual an increase in hotel rates.

And or course they might have increased their rates to pay for the increase in wages they will need to pay to workers they hire

Article:

Aggressive interest rates hikes by the likes of the U.S. Federal Reserve have cast a pall over the strength of global economic growth, with recent market jitters over U.S. and European banks adding to concerns.

"We expect the effects of the rapid yen depreciation (since last year) to dissipate toward this fall," said Toru Suehiro, chief economist at Daiwa Securities.

Ideas:

 Interest rate increases have both positives and negative effects. Its like taking medicine that is supposed to be good for you but there are maybe some obvious side effects. 

The same with interest rates and the economy. An economy and global economy is make up of many sectors and as such not all sectors respond the same to the interest rates. 

A central bank has to decide the positives and negatives of a key interest rate increase and try to balance out the the rate and other strategy tools and a way to limit the side effects

The Bank of Japan seems to have been very good so far, except for the yen situation which maybe is out of their control as the US rate hike might be too much for the yen variance.

Time will tell if the yen will continue to be weak, and is so, consumers and the domestic economy will have to endure higher prices for the time being. 

Have a nice day and be safe!