Japan's Oct. CPI up 2.9%, service prices see quickest gain in 30 yrs
TOKYO (Kyodo) -- Japan's core consumer inflation accelerated to 2.9 percent in October from a year earlier, with services prices marking the fastest gain in three decades, government data showed Friday, keeping up pressure on the Bank of Japan as the key gauge has remained above its target for well over a year.
The pace of increase in the nationwide core consumer price index excluding volatile fresh food items rose from 2.8 percent in September, as the government scrambles to ease the pain of higher prices on households with new inflation relief measures.
The closely watched gauge of inflation was above the BOJ's 2 percent target for the 19th straight month, due to the lingering effects of higher fuel and raw material costs, boosted by a weaker yen.
Ideas:
Most likely the increase in prices for services has more to do with service companies trying to make up for their losses during the pandemic as service type companies were the hardest during the pandemic.
As inflation continues in Japan, the Bank of Japan will be under more pressure to actually not change its current policy, as the thinking is the Japanese economy is still too weak to handle interest rate increases.
Most central banks prefer to keep inflation between 2 and 4 percent, but it seems the Bank of Japan prefers inflation to be around 2 percent, as maybe any higher many of the low-income groups including fixed income groups are under too much stress if inflation gets any higher.
Article:
Stripping away both energy and fresh food prices, so-called core-core CPI increased 4.0 percent, in a sign of persisting inflationary pressures.
BOJ board members have begun to express growing confidence about attaining the inflation target in a "stable and sustainable" way as expectations rise for the momentum behind pay hikes to continue into next year.
"What we have seen so far is that consumption was rather solid in the face of cost-push inflation because of COVID-related catch-up demand. But there is uncertainty over whether that strength will continue," said Shinichiro Kobayashi, a senior economist at Mitsubishi UFJ Research and Consulting.
Ideas:
Maybe, for the most part, Japanese consumers are finding ways to continue to spend on what they want and need despite the continued inflation. That might be a good sign that maybe Japanese consumers have begun to accept inflation in Japan, and not think of Japan as a deflation economy.
As yes, will Japanese consumers continue to spend in the Japanese economy as needed or will they shrink back and save and or only buy what they need?
Wage increases in April of 2024, will be a test for the Bank of Japan, as if companies, all companies, not just large companies can exceed what the BOJ thinks is needed then maybe the BOJ will begin to change its ultralow policy.
But the changes might not be that significant at the BOJ doesn't want to cause too much stress with too many changes too soon.
Article:
Higher prices for everyday goods have hurt consumer sentiment as wage growth has failed to keep pace with inflation. Japan's economic growth stalled in the July-September quarter due to weak spending by both consumers and companies.
Energy prices dropped 8.7 percent, weighed down by government subsidies for lowering gasoline and other fuel costs to support households. The fall was smaller than the previous month's 11.7 percent.
Kerosene prices rose 4.8 percent and gasoline increased 5.0 percent.
Ideas:
Here we go again, in one part of the article it says "consumption was rather solid." but now it says consumer sentiment is not so good, which usually translates into less consumer spending.
But no doubt higher prices and inflation have caused a lot of stress among Japanese consumers. For example maybe the lower-income groups and the fixed income groups might be having the most stress, as they spend more of the income on food than the higher income groups.
Every economy goes through the business cycle, meaning there are always going to be periods of less growth and periods of more growth.
The Japanese government, for the time being, is to keep energy subsidies in place as a way to reduce the stress on Japanese households.
Article:
The government has decided to extend fuel subsidies until next spring as part of its economy-supporting package, which also includes temporary tax cuts and payouts to low-income households, along with tax incentives for companies to raise wages.
In a blow to households, food prices, other than those of perishables, rose 7.6 percent and durable goods gained 3.2 percent.
Services prices increased 2.1 percent, marking the fastest gain since 1993, reflecting the resilience of domestic demand in the aftermath of the COVID-19 shock.
A major booster was a 42.6 percent jump in accommodation fees as travel demand continues to recover with the return of foreign tourists to Japan.
Ideas:
Food prices might also be related to import costs, as Japan has to import much of what it needs, and as the Japanese yen is weak, it causes import prices to be higher.
Service prices might be related to service type companies, as the they see demand improving, are trying to make up for their losses during the pandemic period, where service type companies were hit hard.
And yes, the record number of foreign tourists coming to Japan is no doubt helping Japanese hotels recover their losses from the pandemic.
But at the same time, in other article, there might be a shortage of hotel workers as many sectors in Japan are experiencing labor shortages.
Japanese hotel, being a service type business, might not pay the best wages, as maybe many young Japanese workers don't want to work at hotels in Japan.
Article:
It also came in response to a sharp drop a year earlier under the government's discount program to spur tourism after the sector was hit by the COVID-19 pandemic.
Economists say the recent rising trend of services prices is an indication that a growing number of firms are passing on costs to secure workers amid acute labor shortages in the services sector.
Ideas:
Yes, for hotels and other service companies, to get the best workers possible, they have to pay better wages, and of course they are probably pass-on these increased wage costs to the consumers.
But this is not new as maybe many Japanese companies are trying the same thing as they increase wages, they pass-on their costs to the next in the supply chain including the final customer.
There are many sectors in Japan with labor shortages, and in order to attract the needed workers many companies are increasing wages to attract a younger group or workers as maybe many young workers won't work for a company that doesn't give the wages they want or need and also the work/life balance they want or need.
Article:
Kobayashi expects inflation to slow but only at a moderate pace, saying Japan is "at a crossroads" regarding whether a virtuous cycle of price and wage hikes will be firmly set in motion.
"We need to see whether companies will use their profits to raise pay and ramp up investment more. The ball is in their court," he added.
Ideas:
Japanese companies used to think of employees as stakeholders or an important part of the company. But in recent years, decades, maybe they have moved to a western style of thinking of stockholders as the most important part of the company, as as result, they have not given their employees wage increases for a very long time.
It seems to Bank of Japan is relying too much on companies to increase wages as a way to control inflation and lowering the inflation stress of Japanese households.
But the problem is, 70 percent or Japanese workers don't work for large companies, which gave most of the wage increases in 2023, and not many small or midsize companies gave wage increases.
So, in April of 2024 if small and midsize companies, again, don't increase wages, the Japanese economy will be stuck in a two tier wage system of haves and have-nots, which will not good and will increase inequality in the Japanese economy.
Have a nice day and be safe!
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