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Consumer prices rise at fastest pace since 2008: ministry data

Bloomberg

Consumer prices in June rose the most since 2008, 0.4 percent from a year earlier, an early sign that Japan’s economy may be starting to shake off deflation, the Internal Affairs and Communications Ministry said Friday.

The median estimate of 29 economists was for a 0.3 percent gain, excluding fresh food, a Bloomberg News survey showed. Excluding energy as well, prices dropped 0.2 percent, continuing more than four years of declines.

As Prime Minister Shinzo Abe’s policies weaken the yen and energy costs rise, the increase in prices points to a gradual shift away from the deflation that has dragged on the economy for 15 years. With the Bank of Japan rolling out unprecedented monetary easing from April, the next challenge for Abe is to loosen constraints on the labor market and companies to achieve sustained growth and the BOJ’s 2 percent inflation goal.

“Japan’s economy is on the right track to pull out of deflation,” said Tomo Kinoshita, chief economist at Nomura Holdings Inc. “The relatively large increase in prices should have a knock-on effect of enhancing consumer and business inflation expectations.”

The weak yen and higher gasoline prices have boosted the cost of goods, said Ryutaro Kono, head economist at BNP Paribas SA in Tokyo, before the data were released.

The yen has shed 21 percent of its value versus the dollar in the past year, pushed down by the BOJ’s unprecedented monetary easing. Gasoline prices this week rose to the highest level since April 2012, according to the Ministry of Economy, Trade and Industry.

Companies have started to pass those costs on to consumers.

Meiji Holdings Co. announced earlier in the week that it will raise milk prices by as much as 4 percent from October, citing higher costs from rising commodity prices and the yen’s fall. Other food companies, such as mayonnaise maker Kewpie Corp. and Yamazaki Baking Co., announced price hikes earlier this year.

Meanwhile, the corporate services price index rose 0.4 percent in June from the previous year, the most since the collapse of Lehman Brothers Holdings Inc. in September 2008 caused the global meltdown, BOJ data showed Thursday. Hotel accommodation and engineering services were among the costs that increased.

Citigroup Inc. said it expects consumer prices to rise at a faster pace of around 0.5 percent in July and August compared to 2012, with the increases easing from September.

A growing number of citizens expect inflation to gain traction, with a BOJ report July 5 showing 80.2 percent of people it surveyed predicting prices will increase in the next 12 months, the highest proportion since September 2008.

Absent an increase in personal incomes, higher consumer prices would reduce the spending power of households, weighing on consumption. Wages haven’t risen in Japan on a sustained basis since the bursting of the asset bubble in the early 1990s, as companies focused on fixing balance sheets and consumers reined in spending.

In May, labor cash earnings fell 0.1 percent from the year before.

Abe has launched monetary and fiscal stimulus and steps to make it easier to do business — a policy mix dubbed “Abenomics” — in a bid to boost the economy and end deflation that has been driven by sluggish demand, excess capacity and a contracting population.

  • Sho Takeda

    Yen is weak, consumer prise increased, still personal income hasn’t changed. The game has just started. Lets see what they are gonna do.

    • http://getironic.blogspot.com/ getironic

      Let’s say there’s product called “Fat Burner Over 9000″. FB9K has failed in all empirically documented cases to show any effect on weight loss. Then your local Health and Fitness journalist states that she’s starting on FB9K and is looking to combine it with “calorie counting on Sundays” in order to lose some weight. Would you reserve judgment and wait to see whether she will become the exception to the rule? Or would be more than skeptical, and write a letter condemning her dangerous advocacy of a placebo?

      The term “Fiscal Stimulus” is a lot like our imaginary product. Both of them are advertised to do particular things. They are advertised with their intended results in their very names. But when we look at the mechanics behind the results, and the history of others who have tried these “products”, do they match up with their names, are their mixed results, or does the evidence directly contradict the advertising?

      Counting calories on Sundays, is a lot like this: “…loosen[ing] constraints on the labor market…”. Yes, watching your calories is one part of keeping your figure. But it’s only one part. And Sunday is only one day.

      So, “Loosen constraints” means what, exactly? Deregulation? No one is willing to do that with any consistency, even thought they know it’s one of the ways out. So they settle for “loosening constraints…but only on Sundays”, which really amounts to endless debates about “harmful cuts” and fear mongering about “the lack of regulations”. At the end of all of it, will be some middle-of-the-road, token, changes, which will have the same effect as our journalist’s weight-loss plan.

      What is more interesting than these absurd evasions by government (and their willful co-conspirators in the “let’s continue to call it fiscal stimulus” media), is that when all of this economic tinkering fails, like it necessarily must, what will be made to be the scapegoat? Will anyone have the balls to say “Looks like our bloated socialist governance did it again!”, and if they did, would anyone be willing to listen? Probably not. So, best to damage-control by focusing on how the limited “constraint loosening” empowered “greedy capitalists” to take advantage of “the people” during a crisis, and how that put us back right where we started! Good thing you have “us” to protect you! Yeah, that narrative is much more effective at bringing people back to believing in the state as the all-powerful solver of economic problems, instead as the ultimate cause of them.

      On second thought, “fiscal stimulus” may be the right term after all, because, you can shock a dead body and it will move, right? That’s “stimulation”.

      But shock treatment will never bring the dead back to life. And that’s all this “fiscal stimulus” and limp-wristed economic reform is accomplishing: the writhing of a body that is long since dead, in the hopes to convince everyone, and themselves that everything is still okay.

      Is it?