Japan's inflation slows to 2.8% in Sept. as energy impact lessens
TOKYO (Kyodo) -- Japan's core consumer prices rose 2.8 percent in September, the slowest pace in about a year, amid the moderating effects of fuel price rises, though the increase was still well above the Bank of Japan's inflation target, government data showed Friday.
The pace of increase in the nationwide core consumer price index excluding volatile fresh food items was above the BOJ's 2 percent goal for the 18th straight month, underscoring that recent inflationary pressures, driven largely by higher import costs on the back of the weak yen, have become entrenched. It eased from a 3.1 percent rise in August.
Ideas:
Most central banks would like to see inflation between 2 and 4 percent as they feel that is a manageable level. At the same time, inflation is not bad, its just a signal that the economy has a lot of economic activity.
However, maybe the Bank of Japan feel anything above 2 percent is not good for the Japanese economy, as there are many how might be living on fixed incomes and lower income groups tend to pay more for food than the higher income groups.
A percent of 2.8 percent might not be that much more than 2 percent but in real terms it can be a significant amount depending on the income group.
The Japanese economy is a resource-poor country meaning they have to import much of what they need, as as result, global prices and the difference between the US dollar and the Japanese yen, as made import prices much higher than usual.
Article:
While the BOJ expects cost-push inflation to slow in the coming months, the central bank is expected to raise its current core CPI forecast for fiscal 2023, from 2.5 percent to near 3.0 percent, sources familiar with the matter have said. A fresh outlook report will be released at the end of a two-day policy meeting in late October.
Stripping away both energy and fresh food items, the so-called core-core CPI rose 4.2 percent, slowing slightly from a 4.3 percent rise in August.
Ideas:
Cost-push inflation is nothing more than prices going up and companies passing on their costs to the next in the supply chain, even the final customer.
A CPI of 4.2 or 4.3 is much higher than the BOJ's goal of 2 percent inflation, but at the same time, except for increasing the key interest rate, most central banks don't really do much to try and slow down inflation, as they seem to just let it run its course until the business cycle get back to normal.
Inflation is very much an individual or household situation, depending on what you spend and how much your expenses are.
The lower income groups of course feel inflation more than the higher income groups, but again its individual and what you spend.
The lower income, based on past inflation situations, tend to spend a larger amount of their income or fixed income on food than do the higher income groups, who might not even notice inflation that much or even care about it.
Article:
Rising prices are posing a challenge to policymakers at a time when real wages have been consistently declining. The government plans to draw up an inflation-relief package, with an income tax cut floated as a viable possibility by Prime Minister Fumio Kishida, whose public support has fallen sharply amid the cost-of-living crisis.
Energy prices fell 11.7 percent, marking the sharpest drop in over seven years. Electricity prices tumbled 24.6 percent and city gas sank 17.5 percent, both the largest-ever drops.
Ideas:
Price increases have been going to ever since the pandemic, but the Bank of Japan and or the Japanese government hasn't really done much to slow inflation and keep it under control.
An increase in the income tax might not be the best policy, as it might discourage those who want or need to make more. Its like the sales tax increase in 2014 and in 2019, when consumer spending decreased a lot after the sales tax increases.
Energy prices might have decreased but they still might be too high for many income groups in Japan, as it decreases extra spending in the Japanese economy.
The Japanese PM and or the Japanese government can't make Japanese companies increase wages as it can only be a suggestion and or offer some kind of incentive to companies to continue to increase wages as needed.
Most Japanese wage earners don't work for large companies, which gave most of the wage increases in the spring.
Article:
Government subsidies to lower fuel costs have helped ease some inflationary pressures. Without them, core CPI would have risen 3.8 percent in September, according to the ministry.
Food prices, meanwhile, gained 8.8 percent.
"Companies are expected to continue raising prices to pass on higher costs, maintaining the squeeze on households," said Yoshiki Shinke, senior executive economist at the Dai-ichi Life Research Institute.
Ideas:
Food prices increased 8.8 percent, but again, its very much individual, depending on what you buy each day, each week, or each month.
An increase of 8.8 percent might not even be a factor for higher income groups, but for the lower income groups, it might be a huge increase in food prices.
For a long time Japanese companies were reluctant to increase prices and or pass-on their costs to the next in the supply chain, including the final customer, as they felt they would lose too many customers by increasing prices.
But these days, like western companies, they are increasing prices, as their profit margins has decreased due to energy cost, and raw material cost increases.
Article:
"We expect the year-on-year rise in core CPI to slow going forward but there remains high uncertainty over its pace," Shinke said, noting that companies will speed up price hikes if crude oil prices continue to rise and the yen remains weak.
Conflict in the Middle East has raised concerns about crude oil supply and its negative impact on the global economy, as the Israel-Hamas war continues.
Ideas;
The weak Japanese yen, is both a positive and negative for the Japanese economy. As a positive it help Japanese exporter get more for their products in overseas markets, and also a weak Japanese yen is an incentive for foreign tourist to go to Japan and spend more as they have more purchasing power, which of course the more foreign tourists enter Japan the more they spend and the more the economy grows.
On the negative side, a weak Japanese yen is not so good for import prices and it drives up prices, and as the same time, with energy prices and raw material prices increasing its even more a challenge for the Japanese domestic economy.
These days, it seems Japanese companies have less hesitation about increasing prices and or passing-on their costs to the next in the supply chain, but in recent years, they were reluctant to pass-on their costs to the next in the supply chain.
Article:
Japan's heavy reliance on energy imports makes it vulnerable to swings in crude oil prices, with Russia's war in Ukraine one of the main factors behind the recent bout of inflation in the resource-scarce nation.
The BOJ has diverged from other major central banks that have already raised interest rates aggressively to curb surging inflation amid the Ukraine war and an economic recovery from the COVID-19 pandemic.
Ideas:
Perhaps, Japan should try to get, if they don't have now, some kind of trade agreements with energy producing countries, so that their energy costs can be controlled or managed.
The BOJ or the Bank of Japan, has taken a different approach to trying to manage inflation, as it seems they have taken the approach, for the most part, of just letting inflation run its course and not doing too much to control it, as they continue to say, the Japanese economy, at this time, appears too weak for any interest rate increases.
Perhaps, when it all said and done, the BOJ's approach might have been the best approach for the Japanese economy, while the EU approach and the US approach might have been the best approach for their economies.
Article:
Still, inflation expectations are gradually rising and Japanese firms have become more amenable to raising wages to help workers cope with rising prices.
Economists are keeping tabs on whether price hikes, which have largely centered on goods, will spread further to services, a key factor in determining whether stable inflation can be attained, backed by solid domestic demand.
Ideas:
Its been suggested or reported, before the pandemic, that Japanese companies for many years, were sitting on huge cash sums, and not using some of it for their employees.
But now, with inflation pressures and the Japanese government asking companies to increase wages, companies last spring, for large companies last spring gave wage increases of around 3.5 percent.
But again, the problem was, only large companies gave wage increases and not many small and medium sized companies which make up around 70 percent of the workforce in Japan.
Consumer sentiment is tricky, as maybe if price hikes move into the services sector area, will they begin to cutback on spending in/on services such as hotels, restaurants, and so on.
Article:
Services prices increased 2.0 percent in September, the same pace seen in August.
"There have been cases in which companies in the restaurant sector are going ahead with price hikes to reflect not just higher raw material costs but also personnel costs," a ministry official said.
Ideas:
Its only natural, if restaurants have higher raw material costs and even higher personnel costs that they have to increase prices to maintain their profits margins.
The problem come when restaurants others see other services places increasing their costs, they think they need to do the same, even if their costs are not increasing.
At the same time, as many service places had to lay-off staff during the pandemic, and maybe many former workers didn't return to their former work places after the pandemic, and now service places have to pay higher wages just to attract and keep staff now.
Have a nice day and be safe!
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