Japan Core Consumer Prices: Updated July 23, 2024.

 

Japan's June core consumer prices rise 2.6% on higher energy

Article Source:  https://mainichi.jp/english/articles/20240719/p2g/00m/0bu/018000c

Ideas:

Inflation and Japan's core consumer prices will continue to be a major challenge for the Japanese economy, as Japanese households will continue to have less and less extra income to spend in the economy.

Even though the Japanese government tired to soften prices related to energy costs, a government can't do everything forever, or always as there is just so much money to be used.

Real wage growth is going to be the real challenge in the Japanese economy, as real wages are probably going to be less than inflation in the long run.

The Bank Bank of Japan 2 percent target might be unrealistic as this time as inflation continues on in the Japanese economy, and maybe its time to just set it aside for now until inflation decreases.

Japan is a resource-poor country and has to import much of what it needs including energy commodities. As a result, it it subject to global energy prices and also because the Japanese yen is weak imports prices continue to remain high.

Even if Japan imported raw energy materials such as oil and gas, and then refined them for commercial consumption, it would still need to pay for the raw energy commodities to be refined in Japan.

If Japan hasn't done it yet, they need to have some energy free trade agreements with energy producing countries as a way to reduce energy prices in Japan.

Consumer sentiment among Japanese consumers never seems to be that strong compared to other countries such as the US, as Japanese consumers, for the most part, just don't spend the same way as US consumers.

Wage growth or wage increases in Japan only happens once a year in April, except for twice a year bonuses that some Japanese workers might get.

As such inflation seems to increase monthly or at least quarterly or every three months, which means wages are not keeping up with the increase in prices or inflation.

This summer in Japan, and even now in July or even earlier like the spring, the temperatures in Japan are at record highs and it could last well into September or even October.

And again, a government can't do everything as there is only so much in a government's budget, but for the good of society, governments should do what it can, such as reinstating energy subsidies, especially for the lower-income families and middle class families in Japan.

Private consumption or consumer spending is not going to be strong or robust anytime soon as long as inflation outpaces wages in Japan. Even though wage increases were around 5 percent in April, as maybe many Japanese workers didn't get the same wage increase as the large company workers did.

Inflation might not be a major challenge for some in Japan, but if there is constant news about inflation and prices, then consumers begin to cutback on their spending as all they hear about is the increase in prices.

Service type companies were hit the hardest during the pandemic and many had to either close, reduce hours, or cut their staff.

So now service companies might be increasing prices as a way to makeup for lost profits during the pandemic, and or course as there might be increased demand they might be increasing prices even more.

Now add in labor shortages in Japan, maybe some or many service type companies might be increasing wages as a way to attract needed workers and or to keep the workers they have from leaving and going to better paying jobs.

Goods prices might have begun to level off or not increase that much, unless you add in companies passing on their wage increase costs to the next in the supply chain including the final consumer.

Service costs are a different story, as maybe there is now strong demand in the Japanese economy for services and as such service companies are going to increase prices as demand increases.

And, again, as service companies increase wages to keep or attract needed workers, they are going to pass-on their cost the the next in the supply chain, which in this case is the final consumer.

Private consumption or consumer spending, which might be 50 percent or more of Japan's GDP, is just not that robust or strong at this time, and its going to take some time for inflation to level off and for wage increases to take affect in the Japanese economy.

The Bank of Japan most likely is not going to increase its key interest rate at this time, as the Japanese economy is still just too weak or too stagnant for a rate increase, as a rate increase might have too many side-affects that could delay wage increases helping the Japanese economy.

Have a nice day and be safe!