Japan core consumer prices in Jan. rise 3.2% on year on rice, energy
Commentary:
Japan might be in a sticky inflation situation now where prices are not going down but are staying persistently high as the first few paragraphs of the article show.
The rice situation has been particularly troubling in Japan as rice is very important staple for Japanese households and especially for young families with small children.
The energy situation might be related to the fact that Japan doesn't produce any oil or gas and has to import much if not all that it needs. Of course the weak Japanese yen doesn't help as it increases import prices in Japan.
Price increases of 3.2 percent doesn't really sound like much most likely its an average and maybe some prices of products in Japan increased more than that.
The 2 percent target is a common number that many central banks want to achieve as they feel its a manageable number and at the same shows an economy is moving and no stagnating.
And yes, the inflation rate might be large enough that to give the Bank of Japan motivation to increase the rate in the future, but at the same time, the BOJ needs to look at all the data and factors related to the economy and decide that there are not excessive side affects, that could hurt the economy after a rate hike.
A rate hike of the key interest rate is supposed to help a central bank reduce inflation by causing business from not borrowing and from consumers from not using their credit cards for purchases which can reduce spending in an economy overall.
Again, as increase of 3.5 percent doesn't seem that much, but again, it might be an average as some prices might have increased more than 3.5 percent and some might have not increased that much.
The Bank of Japan is a very conservative organization and is not going to increase the key rate unless all the data and observations add up what to the BOJ's expects.
Ever since the pandemic Japan has had persistent inflation that doesn't seem to go away, but at the same time Japan's inflation has not reached the level of inflation of the EU or the US when inflation was at its highest.
But just because inflation in Japan has not reached the levels of the US or the EU, that doesn't mean Japanese households have not suffered through continuous high prices. Japan for a long time had a period of deflation, when prices appeared to be low, but maybe those days are long gone.
Again, Japan for a very long time was in a deflation situation and prices were reasonable in Japan, but ever since the pandemic the situation has completely changed and now prices seem to be very high for many Japanese households these days.
It seems the rice market in Japan has experienced a period of market failure where the normal market principles of supply and demand don't seem to apply now.
There should never have been a rice shortage in Japan, as the Japanese government was supposed to have maintained a reserve of rice to prevent such situations, but even though the Japanese government released the rice reserves to increase the supply the price of rice has not decreased but in fact has increased.
Part of the problem might be that the Japanese government has also increased the supply of foreign rice into the Japanese market, but for many cases there is a high tariff or sales tax on foreign rice which many or all supermarkets and restaurants in Japan have passed-on the tariff or sales tax to the final customer which means the price of rice as remained high in Japan.
Japan is a resource-poor country which means it has to import much of what is needs and it doesn't produce much gas or oil and is subject to global oil prices along with the Japanese yen being very weak which also increases the price of products going to Japan.
Japanese government subsidies were needed and good for Japanese households but a government can't do everything especially in Japan where it has the highest debt to GDP ratio among advanced nations, and the subsidies only increase the government debt.
The increase in household durable goods might be nothing more than supply and demand as the increase in demand for air conditioners might have increased the price like all products when demand increases.
Yes, as companies increase wages for its workers a company will pass-on those costs to the next in the supply chain, and in this case most likely the final retail customer.
At the same time part of the situation might be many service companies might be increasing prices as they try to make for all the losses they had during the pandemic and at the same time, as foreign tourists have significantly increased, just normal supply and demand would indicate a significant increase in demand is going to bring higher prices at restaurants, hotels, supermarkets, convenience stores and many of the tourist places in Japan such the Kyoto area.
Have a nice day!