Japan's core consumer prices rise 3.1% in July on year
TOKYO (Kyodo) -- Japan's core consumer prices in July rose 3.1 percent from a year earlier, well above the Bank of Japan's 2 percent target, as food and service price hikes kept the overall inflationary trend intact, government data showed Friday.
The nationwide core consumer price index, excluding volatile fresh food items, rose for the 23rd straight month, amid emerging signs of entrenched inflation hurting consumer sentiment.
Ideas:
Most central banks prefer to see inflation between 2 and 4 percent as they think that is a manageable level.
Maybe the Bank of Japan feels 2 percent is a good level, as maybe if it is 3 percent or higher many lower-income or fixed-income households will suffer too much.
The 3.1 percent is being added on to inflation that has already been in the Japanese economy for sometime.
For 23 straight months Japanese consumers have had to endure increased inflation and most likely it will continue into 2024.
Consumer sentiment or feeling has got to be low in Japan as maybe they might think when is is going to end.
Article:
The key gauge of inflation slowed from 3.3 percent in June as the impact of higher fuel costs, a major driver behind the recent bout of cost-push inflation, has been waning, according to the Ministry of Internal Affairs and Communications.
The gauge remained above the BOJ's 2 percent target for the 16th straight month.
Ideas:
Inflation might be decreasing but its most likely still too high for the average consumer or household.
If inflation were above the 2 percent level because of consumer demand and consumer spending then most likely the Bank of Japan would not be worried too much. But because consumer demand and consumer spending is being contained due to inflation, the Bank of Japan might somewhat concerned.
Consumer sentiment or feeling is very important, as if consumers don't feel good about the economy and the future they are not going to spend as needed to get the economy growing again.
Article:
The core-core CPI, which reflects the underlying inflationary trend by stripping away volatile energy and fresh food prices, rose 4.3 percent, accelerating from 4.2 percent in the previous month.
"With inflation entrenched and real wages falling, there is concern about the negative impact on private consumption," said Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research and Consulting.
Ideas:
Inflation at 4.2 or even 4.3 is above the 2 to 4 percent level that most central banks want to see, even though the Bank of Japan has a target of 2 percent, so it has a long way to go to get inflation back down to the 2 percent level.
Real wages are wages without inflation or nominal wages. The average wage increase was around 3.5 percent which is still below the 4.3/4/2 level of inflation in Japan. The 3.5 was just the average as many small and medium sized companies didn't give wage increases, which of course meant many employees in Japan didn't get a wage increase yet inflation keeps increasing.
Private consumption or consumer spending, about 50 percent of Japan's GDP, is always challenge for the Bank of Japan as Japanese consumers just don't spend as freely as US consumer do.
Article:
"The risk is that higher goods prices will prompt consumers to start curbing spending on services, which has so far been supported by pent-up demand," he said.
Japan's economy grew for the third straight quarter in April to June but private consumption, which accounts for more than half of gross domestic product, unexpectedly fell even as strong catch-up demand for dining out and traveling remained.
Ideas:
Pent-up demand will last only so long and then consumers/households will get tired of the continued increase inflation and begin cut-back on their extra income spending as inflation will continue to erode their extra income.
Private consumption or consumer spending can only be sustained so much as then it will begin to stagnate and or decrease due to inflation concerns.
The Japanese economy, like any economy, is dependent on consumer spending as its the largest factor related to economic growth in any major economy.
For example there is consumer spending, business investment/spending, government spending and the exports minus imports.
Of the four majored variables related to GDP growth only consumer spending is a factor as business investment/spending is never enough to grow the economy.
Government spending, while used at times, as consumer spending is not high enough, is not high enough for economic growth.
Exports minus imports, are still never high enough for economic growth by its self.
Article:
Food prices jumped 9.2 percent while durable goods saw a 6.0 percent increase.
Service prices increased 2.0 percent, marking the sharpest gain in roughly three decades without the effects of past consumption tax hikes, after price hikes were largely seen among goods.
Ideas:
As food prices continue to increase, most likely the fixed-income groups along with lower-income groups might begin to cut-back on their normal food purchases and look for substitutes or lower-priced food.
Unfortunately, the lower-priced food is always the unhealthiest choice for consumers.
Durable goods, which might be goods made of metal products might have seen price increases due to raw material price increases.
Service prices might have increased due to the fact that service type businesses were the hardest hit during the pandemic and they have increased prices as a way to makeup for lost sales and profits during the pandemic.
Article:
Accommodation fees jumped 15.1 percent during the summer holiday season, partly because of some curtailment of government subsidy programs aimed at spurring tourism in the aftermath of the COVID-19 pandemic.
Mobile communication fees surged 10.2 percent, accelerating at the fastest pace since comparable data became available in 2001.
Ideas:
Accommodations might have increased fees during the Obon season as tourism demand increased which is normal during any holiday period.
The government subsidy program might have stopped but most likely that didn't stop tourists from traveling around Japan.
At the same time, as the services sector, which includes accommodations was the hardest hit sector during the pandemic, they also might have increased prices as a way to makeup for lost sales and profits during the pandemic.
Mobile communication operators, which had major cutbacks before the pandemic might too be making up for lost sales and revenue.
Article:
Energy prices dropped 8.7 percent, aided by government subsidies to curb household utility bills that helped pushed down the core CPI by around 1 percentage point.
The BOJ has already lifted its inflation outlook for fiscal 2023, forecasting the core CPI will rise 2.5 percent but undershoot its 2 percent target in the following two years.
Ideas:
Energy prices might have dropped 8.7 percent but are they still too high for the average family and do the subsidies also help the suppliers of energy in Japan.
Core CPI might increase to 2.5 percent but that of course is added onto what inflation has done in Japan the last two years.
Even with a drop of core CPI by 1 percent it might still be too high for the lower-income and fixed-income groups in Japan.
At the same time, inflation is very much an individual variable, meaning not all families feel the same effect related to inflation, as consumers don't all buy the same products or services so there might be selective inflation depending on what you buy or use in an economy.
Article:
While maintaining its program to keep borrowing costs depressed, the BOJ in July loosened its grip on 10-year Japanese government bond yields, allowing them to rise more.
The central bank has stressed the need for sustained wage growth to achieve its 2 percent price stability target, saying the recent bout of inflation has been largely caused by higher import costs, not strong demand.
Ideas:
The Bank of Japan might have loosened its grip on Japanese government bonds, but for the most part, it really hasn't done much related to inflation, preferring to let inflation just run its course and not interfere too much in the economy at this time.
The Japanese government and Bank of Japan, while two separate entities, both stress the need for wage growth as a way to stimulate and grow the economy.
While many large Japanese companies increased wages, many small and medium sized companies, most likely didn't increase wages, which accounts for maybe 70 percent of all wage earners in Japan.
Strong demand will not be seen in Japan until all companies can increase wages, and if not then there is going to be wage/income inequality variance which will constrain consumer demand in the Japanese economy.
To be fair, because of inflation, energy prices, and raw material price increases maybe many companies just can't increase wages at this time, but maybe when inflation decreases and their profit margins increase again, they can think about increasing wages.
Article:
Kobayashi said more companies have been raising prices to pass on higher labor costs, particularly in sectors that are short of labor such as restaurants, in addition to those coping with high raw material prices.
"Corporate earnings are expected to be robust so the question is whether they will continue raising wages. If that pass-through to wages doesn't happen, consumption will take a hit," Kobayashi added.
Ideas:
Its one thing to pass-on or increase prices due to high raw material costs, but it not logical to increase price because of labor shortages unless a company is trying to build up extra reserves in order alleviate its labor shortage.
Corporate earnings have been robust for sometime, but companies have refused to increase wages until just recently.
For example, since the 2008 global financial crisis, many companies have horded their cash holdings, and haven't increased wages for employees during that time.
Consumption or consumer spending is already beginning to decrease as wages have not kept up with inflation, and then as 70 percent or more of wage earners didn't get wage increases it could become a compounding factor, meaning it can spread and multiply overtime.
Article:
Economists say recent cost-push inflation has already peaked, after the core CPI surged 4.2 percent earlier this year. But it is expected to slow only moderately in the coming months, with eyes on whether the government will extend the energy-related subsidy programs beyond this fall.
Ideas:
Inflation might be slowing but most likely its still too high for most households and even businesses.
And what about the suppliers of energy in Japan, are they too, as had been reported still getting subsides as they have to import the energy products into Japan.
Energy related government subsidy programs might be good but a government can't do everything in a market economy, as it can only do so much as too much interference might not be the best way to improve and economic situation.
Article:
Another concern is the weakness of the yen, which inflates import costs for resource-scarce Japan. The Japanese currency remains under selling pressure, even after the BOJ's decision to make its yield cap program more flexible and narrow interest rate differentials with the United States.
"While the yen's depreciation of late will likely keep prices from falling, we expect disinflation to continue for some time, given there has been some weakness in consumption," said Toru Suehiro, chief economist at Daiwa Securities, referring to the possibility that the pace of price hikes will slow.
Ideas:
As the US recently has been increasing its key interest rate, while the Bank of Japan has done the opposite by not increasing its key rate, the difference between Japan and the US and key rate in both countries has weakened the Japanese yen and caused import prices to increase at the same time.
A weak yen is good for exporters, as they can get extra income for their products soled in the US but causes imports prices from the US to be more expensive in Japan.
Disinflation might not be a bad thing for the Japanese economy, as it might be a temporary slowing of inflation in Japan. But the challenge might be to make sure that disinflation doesn't become de-flation or the falling of prices too low.
But at this point in time with inflation as high as it is, there seems to less chance of deflation but a continuation of disinflation in Japan.
Have a nice day and be safe!
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