Core prices are used to measure consumer prices in the the country, Core prices exclude the volatility of fresh foods but factor out energy costs. In August, core prices were 3.1% compared to the previous year, a figure that has remained consistent over the past seven months. This stability places inflation above pre-pandemic levels yet below the peaks witnessed in 2022. This suggest that Japan is grappling with underlying inflation not seen since the early 1980s, raising concerns about the nation’s inflation problem.
In Japan, goods prices surged by 4.2% in August, whereas services saw a more modest increase of 2%. The pace of wage growth is another concern which lags behind rising prices. Over the past 16 months, households have consistently experienced a decline in real earnings when adjusted for inflation. This growing disparity between incomes and prices underscores the challenges faced by Japanese citizens.
The Bank of Japan has argued that inflation is supply-driven, not demand-driven, suggesting that monetary policy tightening is unnecessary. However, despite the apparent easing of supply factors, inflation persists, signaling that it might be entrenched in market participants expectations. This raises questions about the Bank of Japan’s reluctance to adopt tighter monetary policies.
Reference:
Siegel, Mark. “Japan’s Monetary Trilemma Is a Warning to the World.” Atlantic Council, Atlantic Council, 12 May 2023, www.atlanticcouncil.org/blogs/econographics/japans-monetary-trilemma-is-a-warning-to-the-world/.
Japan' struggles with inflation are not uncommon to the rest rest of the world. They are a strong economy and hopefully will be able to sort its self out soon. Hopefully without accidentally causing a recession as well. The Bank of Japan certainly has some work cut out for it with these steep inflation rates.
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