Japan inflation rate at 2.4% in Dec. on food costs, above BOJ target
Ideas
Inflation in Japan has been higher than normal or what it should almost since the pandemic and doesn't seem to be decreasing anytime soon or most likely will be too high or most consumers in Japan for a while.
And yes, at 2.4 percent its above the BOJ's target of 2 percent, which coincidentally is the tragedy rate that most central banks around the world prefer inflation to be at and they feel its at a manageable rate, which keep an economy moving along correctly.
State subsides, which Japan has been using a lot lately to help Japanese households is both a positive and can be a negative too.
For Japanese households subsidies help with a households disposable income which means they potentially have a little more to either save or to spend in the economy.
While a negative means potentially it could increase the already high Japan government debt which is one of the highest if not the highest among advanced economies.
The new Prime Minister appears to be like a fiscal dove which means in the near future there could be more government spending to help the economy with lower interest rates, more government subsides, and additional budgets to help improve the economy and improve the lives of Japanese households, but of course increasing the already high government debt.
Even with a core-core CPI of 2.9 percent it is most likely higher than what most Japanese households want to see as it strips away or decreases their needed disposable income for spending in other areas of the economy or other areas of spending they need to do for their families and homes.
At the same time, at 2.9 percent that is most likely way too high for lower-income families and significantly too high for fixed income families as even a slight increase in inflation can have a major impact on the fixed income families in Japan, as they might have to go without some food or needed supplies for their home situation.
Once again an increase of 6.7 percent is way to high for most Japanese households as it cuts into their already limited disposable income and which means potentially less spending in the the Japanese economy which is sorely needed to help get the economy moving again.
And then there is the weak Japanese yen, which can be both a positive and a negative for the Japanese economy. For domestic economy overall, a weak yen increases the price of imports to Japan, which means importers or wholesalers in the supply chain can and will pass-on the import price increases to the next in the supply chain which eventually will include the final retail consumer in Japan.
As far as being a positive the weak yen increases the profits of Japanese export companies which sell their products in overseas markets which contributes to the Japan current account which like a country's bank account which potentially has the ability to maybe reduce higher than normal Japanese government debt.
The increase in rice prices all started back in the summer of 2024 with a supposed rice shortage and with the news of a possible potential earthquake, which saw Japanese consumer rushing to the the supermarkets to buy up as much rice as they could and or horde as much as they could due to the new of a potential earthquake.
And then there was and is the supposedly continued rice shortage which Japan has not been able to control or has been unable to control the increase in rice prices since the summer of 2024, as all of the strategies the Japan government has tried to get rice prices down has not really worked.
Japan is a resource-poor economy which means it has to import much of what it needs including its energy supply needs. What is still not clear on why haven't the supposed trade agreements it has with oil producing countries and Japan still has to pay for higher oil prices on their energy imports.
Again, government subsidies are sometimes good and of course needed to help but again they can increase debt that a government has but Japan has been using subsidies for so long that maybe they no longer think much about it as it just a normal situation now in Japan.
Maybe the Japanese government keeps trying many strategies to get prices down and at the same time trying to get Japanese consumers to spend more in the economy, but while intentions are good they don't don't seem to be working that much at the present time.
Yes, an increase in the key BOJ rate had the potential to reduce inflation but can it be sustained over the long term or is inflation going to inch back up in the future, as inflation has continually been like sticky prices meaning its stubborn and doesn't want to go down that much or that fast in Japan.
The BOJ target inflation rate of 2 percent has been a target of goal for a very long time but it hasn't been reached or able to be reached as whatever the Japanese government or the BOJ tries to use to get inflation down just hasn't worked.
But to be fair to the BOJ, they really haven't tried to increase the key rate that much as the BOJ as consistently suggested that the Japanese economy overall has just been too weak to handle any sustained rate increases and there are just potentially too many side affects related to a rate increase in Japan.
Wage growth or wage increases seem to be a strategies that the BOJ is counting on to help the the Japanese economy a to grow again and get out of its current stagnation phase but the wage increases which really started again April of 2024 really hasn't had that much of an affect yet.
The reason why the wage increases might not have had that much of an affect is up to 70 percent of the workforce in Japan doesn't work for the large name-brand companies which give the best wage increases while the small and mid-size companies where most Japanese workers are don't give as good a wage increase which means they still feel the affects of inflation and still don't want or can't spend in the Japanese economy as much as the BOJ would like them to spend.
Core consumer prices might have increased 3.1 percent annually which they might have a cumulative affect meaning the previous years increases of consumer prices have compounded over time which makes the 3.1 percent increase feel even more as fours of prices increases for the average Japanese family can be significantly and can greatly reduce their disposable income needed to spend on other things in the economy.
And then again there is the lower-income group and the fixed income group which the compounding of the core consumer prices which even expensive to the point they might have to find substitutes for food or other items they normally buy as they are just too expensive, or unfortunately have to go without.
And again, there is the rice situation in Japan, which never should have happened as rice is a major staple for most if not all Japanese households. Some can blame the weather, some can blame government strategies to reduce prices but whatever has been tried just hasn't worked to bring prices down.
There should have been maybe the use of prices controls, maybe on a temporary basis to control the price of rice for the good of society or at least price controls in supermarkets as needed as again rice is a major staple like milk, bread, and eggs are in western economies and maybe shouldn't be left the the whims of the markets to determine the prices as Japanese society depends on or needs a normal price structure that is not out of their control related to their daily lives.
Have a nice day!
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