Japan’s inflation is hovering around a two-year high, and the Bank of Japan is warning about pricing pressure.
What is the inflation rate in Japan in 2021?
In December, core consumer prices, which exclude fresh food, climbed 0.10 percent over the previous month, down from 0.30 percent in November.
In December, core consumer prices gained 0.4 percent on an annual basis, down from a 20-month high of 0.5 percent in November. As a result, the annual average variation of core consumer prices in 2021 was minus 0.2 percent, reflecting the decrease seen in 2020. Finally, consumer price inflation for all items increased to 0.8 percent in December, up from 0.6 percent the previous month.
Yuki Takashima and Takashi Miwa, economists of Nomura, commented on the outlook:
“We expect global inflationary pressures, namely from rising energy and food prices, to continue to be reflected in Japanese consumer prices.” Our predictions call for core CPI inflation to grow to roughly 1.5 percent yoy in AprilJune 2022, but we expect it to decelerate from there, owing to negative contributions from energy prices, and we expect Japan’s inflation rates to remain lower than those in other nations like the United States.”
What accounts for Japan’s low inflation rate?
Rising producer costs have not yet filtered through to consumer prices, owing to entrenched expectations built up over decades of low or no inflation. Import price rises are notoriously difficult for domestic businesses to pass on to consumers. At a news conference in October, Bank of Japan Governor Haruhiko Kuroda blamed this hesitancy on habits developed during the country’s recurring periods of deflation. Companies have a compelling motivation to oppose hikes. Kikkoman, a soy sauce manufacturer, announced a 4-10 percent price rise starting February last week. In America, such an event might go unnoticed. However, it became national news in Japan.
Another important reason is Japan’s sluggish consumer recovery. The third quarter of the year saw a drop in private spending, which is now 3.5 percent lower than it was at the end of 2019. In Japan, spending on durable goods, which accounts for majority of the country’s inflation, has been virtually unchanged over the previous eight years.
The second paragraph is right; Japan’s low inflation is due to a lack of consumer spending. (While I prefer to concentrate on NGDP, the two aggregates tend to move in lockstep.)
Low inflation is unavoidable in Japan due to the lack of NGDP growth. The rumored “Firms’ “reluctance” to raise prices (stated in the first paragraph) has no bearing on Japan’s low inflation. It’s a mistake to mix together causes with symptoms. (On the other hand, in America, people complain about “price gouging” by oil firms, which is also false.)
It is theoretically feasible that enterprises’ hesitation to raise prices will result in decreased inflation, at least temporarily.
Assume the BOJ raises Japanese NGDP at a rate of 5% per year for the next few years.
If Japanese companies refused to raise prices, real GDP would rise at a rate of 5% each year.
However, at some point, you will run out of workers, and the rate of increase in real output will be unable to continue.
However, this is not the case in Japan, where NGDP growth has been minimal since the late 1990s.
The lack of Japanese inflation since 1996 can be explained entirely by slow NGDP growth (i.e. tight money).
There’s nothing left to explain from Japanese firm pricing behavior after accounting for near-zero NGDP growth.
PS. Take a look at the graph again.
It displays NGDP levels rather than growth rates.
This graph is one of the most perplexing in the history of modern macroeconomics.
By the way, Japan’s overall population in 2020 will be roughly the same as it was in 1996, implying that per capita NGDP will remain unchanged.
Imagine not getting a raise for the next quarter-century!
(In actual terms, Japan has done OK, but in comparison to countries like the United States, Australia, and Germany, its performance has been a bit disappointing.)
What is Japan’s inflation rate?
In February, core consumer prices, which exclude fresh food, climbed 0.40 percent over the previous month, up from a flat result in January. The increase in February was the largest since January 2021.
In February, core consumer price inflation increased to 0.6 percent in yearly terms, up from 0.3 percent in January. The rate of inflation in February was the highest since March 2020. As a result, the trend shifted slightly upwards in February, with the annual average variation of core consumer prices coming in at 0.6 percent (January: 0.2 percent ). Finally, consumer price inflation increased to 0.9 percent in February, up from 0.5 percent the prior month.
Alvin Liew, senior economist at United Overseas Bank, commented on the inflation outlook:
“With the geopolitical-driven commodity price surge and another temporary raw material supply chain disruption factored in, both headline and core inflation will jump beyond 2% in the coming months of 2022, exceeding the Bank of Japan’s 2% inflation target, in our opinion.” However, it will only last a short time and not for the anticipated reason, as wage-driven inflation remains elusive. From Q2 onwards, the drag of mobile charge fees, which had weighed substantially on overall prices in the previous year, will subside, providing favorable inflation base effects. As a result, we’ve raised our prediction for headline CPI inflation to 2.5 percent (from 1.7 percent previously), while core inflation will average 2.2 percent in 2022.”
Overall consumer prices are expected to rise 0.9 percent in 2022, according to FocusEconomics panelists, up 0.1 percentage points from last month’s forecast. Prices are expected to rise 0.7 percent in 2023, according to the panel.
What accounts for Japan’s low GDP?
Japan’s economy was the envy of the world in the 1980s. It grew at a breakneck pace, looking poised to overtake the United States as the world’s greatest economy. But that didn’t work out. In 1990, an asset bubble that had been building during the 1980s burst, forcing Japan’s economy to fail. This pushed Japan’s economy into a prolonged era of stagnation and deflation, dubbed the “Lost Decade,” now plural, which has lasted until now.
What is China’s inflation rate?
Inflation in China was 2.42 percent in 2020, down 0.48 percent from 2019. In 2019, China’s inflation rate was 2.90 percent, up 0.82 percent from 2018. The annual inflation rate in China was 2.07% in 2018, up 0.48 percent from 2017. In 2017, China’s inflation rate was 1.59 percent, down 0.41 percent from 2016.
What causes Japan’s inflation?
COST PUSH and DEMAND PULL are the two fundamental causes of inflation. The former refers to an increase in production costs, which results in a price increase, whereas the latter refers to an increase in aggregate demand as a result of changes in consumption, investment, and government spending.
Is 0% inflation desirable?
Regardless of whether the Mack bill succeeds, the Fed will have to assess if it still intends to pursue lower inflation. We evaluated the costs of maintaining a zero inflation rate and found that, contrary to prior research, the costs of maintaining a zero inflation rate are likely to be considerable and permanent: a continued loss of 1 to 3% of GDP each year, with increased unemployment rates as a result. As a result, achieving zero inflation would impose significant actual costs on the American economy.
Firms are hesitant to slash salaries, which is why zero inflation imposes such high costs for the economy. Some businesses and industries perform better than others in both good and bad times. To account for these disparities in economic fortunes, wages must be adjusted. Relative salaries can easily adapt in times of mild inflation and productivity development. Unlucky businesses may be able to boost wages by less than the national average, while fortunate businesses may be able to raise wages by more than the national average. However, if productivity growth is low (as it has been in the United States since the early 1970s) and there is no inflation, firms that need to reduce their relative wages can only do so by reducing their employees’ money wages. They maintain relative salaries too high and employment too low because they don’t want to do this. The effects on the economy as a whole are bigger than the employment consequences of the impacted firms due to spillovers.
Who holds the majority of Japan’s debt?
The Japanese public debt is predicted to be around US$12.20 trillion (1.4 quadrillion yen) as of 2022, or 266 percent of GDP, the largest of any developed country. The Bank of Japan holds 45 percent of this debt.
The collapse of Japan’s asset price bubble in 1991 ushered in a long period of economic stagnation known as the “lost decade,” with real GDP decreasing considerably during the 1990s. As a result, in the early 2000s, the Bank of Japan embarked on a non-traditional strategy of quantitative easing to inject liquidity into the market in order to promote economic growth. By 2013, Japan’s public debt had surpassed one quadrillion yen (US$10.46 trillion), more than twice the country’s yearly gross domestic product and already the world’s highest debt ratio.
Japan’s public debt has continued to climb in response to a number of issues, including the Global Financial Crisis in 2007-08, the Tsunami in 2011, and the COVID-19 epidemic, which began in late 2019 and has consequences for Tokyo’s hosting of the 2020 Summer Olympics. In August 2011, Moody’s downgraded Japan’s long-term sovereign debt rating from Aa2 to Aa3 due to the country’s large deficit and high borrowing levels. The ratings drop was influenced by substantial budget deficits and government debt since the global recession of 2008-09, as well as the Tohoku earthquake and tsunami in March 2011. The Yearbook of the Organisation for Economic Co-operation and Development (OECD) noted in 2012 that Japan’s “debt surged above 200 percent of GDP partially as a result of the devastating earthquake and subsequent reconstruction efforts.” Because of the growing debt, former Prime Minister Naoto Kan labeled the issue “urgent.”
Is low inflation beneficial or harmful?
Inflation that is low, consistent, and predictable is good for the economyand your money. It aids in the preservation of money’s worth and makes it easier for everyone to plan how, where, and when they spend.
Companies, for example, are more likely to expand their operations if they know what their costs will be in the coming years. This allows the economy to grow at a steady rate, resulting in better salaries and additional jobs.