Japan: Inflation at Multi-Year High

Econintersect:  The government announced that in September 2013 Japan continued to have inflation at levels seldom seen in the past decade.  Inflation reached a level in August that was the highest since late 2008 and the number was repeated for September.  The high inflation number?  For both of the two most recent months reported inflation was 1.1% year-over-year.  The government has an official target of reaching 2% annual inflation to bring an end to years of crushing deflation, and movement toward that goal has been difficult.

The number frequently reported in the press is the inflation without including fresh food which was 0.7% in September, down from 0.8% in August.  The complete data table from the government statistics office follows:

The Financial Times has remarked on a troubling aspect of the even low level of inflation achieved:

Still, the source of recent inflationary pressure – the yen’s diminished buying power in international markets, rather than significantly stronger demand for goods at home – has worried economists.

The currency has lost about 20 per cent of its value against the dollar and the euro over the past year in response to Japan’s monetary shift, which has involved sharply increasing the amount of yen in circulation.

The lower value for the yen has made energy push inflation the largest factor to date.  The government would like economic growth to be pushing the inflation curve.  When energy and energy related items are removed from the equation there was no price change from a year ago.  But even no inflation is a victory of sorts, because it is the first time that core inflation has not been negative since Prime Minister Shinto Abe  took office nine months ago.

A significant factor has been the boost to exports due to the cheaper yen.  Domestic consumption still seems locked in a slow contraction.

The persistence of deflation in Japan since the turn of the century is seen in the following graph from Trading Economics.

The graph for core inflation can be seen in a previous GEI News article.

John Lounsbury

Sources:

• Japan Statistics Bureau Report (Ministry of Internal Affairs and Communications, 25 October 2013)

• Japanese inflation nears 5-year high (Jonathan Soble, Financial Times, 25 October 2013)

• Japan Inflation Rate (Trading Economics, 25 October 2013)

• Japan: Inflation Increases (or Not) (GEI News, 26 July 2013)