Japan Wholesale Prices: Updated Oct. 8, 2023

 Article Source: https://mainichi.jp/english/articles/20230612/p2g/00m/0bu/023000

Article:

TOKYO (Kyodo) -- Japan's wholesale prices accelerated at their slowest pace in about two years in May, gaining 5.1 percent from a year earlier, the Bank of Japan said Monday, with raw material costs higher but the impact of a weaker yen continuing to wane.

The prices of goods traded between companies gained for the 27th straight month, suggesting persisting inflationary pressure in Japan, where consumer inflation has remained above the BOJ's 2 percent target for over a year.

Ideas:

Before the pandemic companies were somewhat reluctant to pass-on their increased material costs to the next in the supply chain including the final customer.

However, as inflation as continue and their bottom line, profits margins keep decreasing they now have no choice but to pass-on their costs to the next in the supply chain.

Wholesale prices might be slowing somewhat but after two plus years of increased they remain high.

Inflation may continue to be higher than what the Bank of Japan wants but the BOJ doesn't seem to be any hurry to enact strategies like the US Federal Reserve.

Article:

The pace of increase slowed for the fifth month in a row, partly due to government subsidies to lower fuel costs. The May figure was the smallest gain since June 2021, when wholesale prices rose 5.0 percent.

The index measuring corporate goods prices dropped 0.7 percent from the previous month to 119.1. April, the beginning of the fiscal year, saw a wide range of price hikes.

Ideas:

The pace of increase may have slowed some but still high for the average business, and yes, subsidies might be helping but inflation is still high in Japan.

The index is still a number and what is really important is what does the average business feel and think about inflation and how it affects them.

Does inflation have a place in an economy? Yes but at a manageable level. Most central banks prefer inflation between 2 and 4 percent. Below 2 percent and central banks the economy is running/moving too slow. Above 4 percent and they think its running/moving too fast.

Price hikes/increases are inevitable but they need to be managed and not out of control as inflation can have really challenges for most consumers.

Article:

The BOJ maintains that its current ultralow rate policy is necessary as recent cost-push inflation, or price hikes driven by rising costs, is expected to decelerate later this year.

Import prices fell 5.4 percent from a year earlier, dropping for the second straight month and easing pressure on corporate prices, the data showed. The yen's rapid depreciation last year, especially against the U.S. dollar, had inflated import costs for resource-scarce Japan.

Ideas:

The BOJ seems to be taking a different strategy or approach to what the US and the EU is doing. The US and the EU keep increasing the key rate while Japan has done the opposite and seems to be just letting inflation runs its course without much intervention.

Neither strategy seems to be better than the other as inflation, globally is still very high at this time.

Japan is a resource-poor country which means it has to import a lot of products including energy, and so its very vulnerable to fluctuations with the Japanese yen and its variance against the US dollar and it increase import prices.

Article:

Export prices, meanwhile, gained 2.0 percent.

Among major gainers, food and beverage prices increased 7.9 percent while minerals jumped 14.7 percent. Electricity, gas and water bills increased 13.1 percent, though the gain was limited by government subsidies to lower fuel costs.

Ideas:

A weak yen is usually a positive for Japanese exporters and they can get higher prices for their products like in the US.

But it can be a negative too as it might increase import raw material prices that manufacturers need to make their products.

Food and beverage prices might have gained 7.9 percent but they might also have multiplied over the last 2 years as prices continue to increase each month or each quarter.

Energy prices too, maybe helped some by government subsidies but they too have have multiplied over the past two years.

Article:

Petroleum and coal products dipped 1.8 percent, after their sharp gains amid supply concerns caused by Russia's war in Ukraine became a major contributor to Japan's inflationary pressure.

"We will watch carefully the impact of moves in commodity prices and foreign exchange rates on import prices and how higher costs are passed on to (consumer) products," a BOJ official said, adding that uncertainty remains high.

Ideas:

Petroleum and coal products are probably used by businesses as needed raw materials and as such maybe those businesses are also passing-on their increased costs to the next in the supply chain. 

The Bank of Japan, while showing concern in some communications about prices, seem to be taking the strategy of just letting inflation run its course over time, while the US is doing the opposite.

Neither strategy seems to be working as both countries continue to have high inflation challenges.

Which strategy or approach is best? That depends on the perspective of each central bank as each central bank is facing different challenges as the US economy is not the Japanese economy and each central bank does what they think is best for the economy at the present time.

Have a nice day and be safe!