Japan Core Consumer Prices: Updated Oct. 15, 2023

 Article Source: https://mainichi.jp/english/articles/20230623/p2g/00m/0bu/020000c

Article:

TOKYO (Kyodo) -- Japan's core consumer prices in May rose 3.2 percent from a year earlier as a record drop in electricity bills failed to offset increased food costs, government data showed Friday.

The nationwide core consumer price index, excluding volatile fresh food items, remained above the Bank of Japan's 2 percent target for the 14th straight month.

Ideas:

Consumer prices are always changing or fluctuating so consumers always have to be concerned with that or that household cost increasing or decreasing.

While electricity costs might have decreased consumers had to worry about an increase in food costs.

Consumers might have had to cut back on their electricity usage and just as those costs might have gone down they had to worry about a new increase in food prices.

The consumer price index, while below the 2 percent level, they are still high enough that consumers/households feel the increase in prices.

Article:

The key gauge of inflation slowed from 3.4 percent in April, but it still marked the 21st month of year-on-year increase, due largely to higher import costs for fuel and raw materials.

Core-core CPI, which strips away energy and fresh food prices, jumped 4.3 percent from a year earlier, marking the largest gain since June 1981 when it stood at 4.5 percent, according to the Ministry of Internal Affairs and Communications.

Ideas:

The key gauge of inflation, for the most part, is just a number, as inflation might affect different groups differently.

The same with the core-core CPI reading as it too is just a number and might affect different groups differently.

Buy both are important indicators or trends taking place in the Japanese economy overall.

Japan's inflation at 4.3 percent,while high for Japan, is much lower than inflation in the US or the EU at this time.

There is no real evidence that if the Bank of Japan had followed what the US Federal Reserve did with increasing the key rate that inflation in Japan would have decreased.

So maybe the BOJ have been correct all along in keeping its key rate low.

Article:

Prices for food jumped 9.2 percent, the biggest increase since 1975, while those for durable goods rose 9.0 percent.

Government subsidies to lower household utility bills and a cut in renewable energy surcharges beginning in May helped pushed down energy prices by 8.2 percent, with electricity prices plunging 17.1 percent, the most since comparable data became available in 1971.

"Goods prices affected by higher import costs are rising more broadly, while some signs appear to be emerging of moves to hike service prices," said Yoshiki Shinke, senior executive economist at the Dai-ichi Life Research Institute.

Ideas:

Maybe not everyone feels the increase in food prices but there are probably enough consumers feeling price increases that food buying might be constrained somewhat.

Its good that the Japanese government has introduced subsidies into the economy, but maybe food prices are still too high too at this time.

The services sector is much different in regards to price increase as the service sector might be trying to make up for all of the lost revenue during the pandemic so they have increased prices to recover their lost revenue.

At the same time, as demand in services increases, service sector businesses are taking advantage of the increased demand.

Article:

"The question is whether consumers will bear up when wages are rising but have not kept pace with inflation. If demand does not increase, then companies won't be able to raise prices," Shinke said.

Private consumption has been resilient despite rising prices for everyday goods, supported by pent-up demand after the height of the COVID-19 pandemic.

Price hikes spreading from goods to services are considered a sign of strengthening domestic demand. Service prices gained 2.0 percent in May, helped by higher accommodation fees and increased restaurant prices.

Ideas:

Its a chicken or egg question or demand and supply question regarding wages and consumer spending. 

Private spending or consumption has increase, at this time, but mostly from latent demand or pent-up demand related to the pandemic.

But over time, consumer demand might begin to decrease as inflation continues to increase if wages are not high enough to keep consumer happy,

The increase in the service sector prices is it companies taking advantage of demand or is it a result of companies increasing prices to make up for lost sales and revenue during the pandemic.

Article:

More robust wage growth is critical to achieving stable inflation as envisaged by the BOJ. Major companies agreed to raise pay by the most in about three decades during spring negotiations with labor unions.

"The impact of pay hikes as agreed on during the 'shunto' negotiations is expected to emerge going forward, so we are closely watching how it will affect service prices," a government official said.

BOJ Governor Kazuo Ueda has acknowledged that inflation has been slowing at a more moderate pace than expected, but the central bank has stuck to its view that core CPI will undershoot 2 percent later this year.

Ideas:

The challenges with wage increase is not all companies have been able to increase wages. While most large companies might have increased wages, many small and medium-sized companies might not have been able to increase wages even though they might have wanted to.

The challenge in Japan, like all economies, is there are thousands more small and medium-sized companies than large companies and large companies only makeup a small percentage of an economy.

The services sector is much different than manufacturing and or other large companies as their price structure is maybe more toward the lower wage range and they probably have more wage earners at the low end than the higher end of the wage scale.

Inflation might be slowing but has it slowed enough to where the average consumer feels better in the economy or is still to high at this time.

The Bank of Japan is probably correct in not increasing rates that this time, and might continue to take the position of just letting inflation run is course while managing what it can in the economy.

Article:

Crude oil prices have been stabilizing after sharp gains that hit resource-scarce Japan, with a weak yen inflating import costs. Still, utilities are scheduled to raise electricity prices in June, which is expected to boost CPI.

Toru Suehiro, chief economist at Daiwa Securities, expects core CPI to rise about 3.5 percent in June. "Overall, it's highly likely that inflation will slow (in the coming months)," he said.

Ideas:

Japan is a very resource-poor country and has to import many products, and if the yen is not equal with the US dollar the result is higher imports prices on many products going into Japan.

Again, inflation might start to decrease in the coming month, but will it decrease enough to where consumers/households can finally feel good again about their monthly costs.

And again, are the wage increases going to be enough to offset any continue inflation increases in the future, or are again, are only large companies going to continue to increase wages and will be enough to increase consumer demand in the Japanese economy.

Article:

The BOJ forecasts core CPI will increase 1.8 percent in fiscal 2023 from a year earlier, a reason for the central bank's pledge to continue monetary easing "patiently."

Many economists expect an upward revision to the outlook when the central bank releases an update in July.

Ideas:

All central banks, for the most part, are very cautious on what they say and do as they don't want to cause panic in the financial markets. 

So they always try to take a slow approach to adjustments in the economy, and in this case, the Bank of Japan, doesn't want to cause any concerns for the financial markets by doing something too fast or too ambitious at this time.

Also, as a new Bank of Japan governor just took control, he doesn't want to change anything to quickly that might cause the previous governor to lose face with the idea that the Bank of Japan's strategies in the past might not have worked.

Most likely any news releases by the Bank of Japan will  be calm and not cause much concern for the financial markets.

Have a nice day and be safe!