This week's Weekly: What does reversal of US-Japan inflation mean ?
(WEEKLY RANDOM TALK WITH GOOGLE GENERATED AI-BARD)
2023-07-18 05:44:56NEW!
Theme: Weekly
This is just through Google AI translation only from my original Japanese Weekly issued this morning.
(Myself) Last week, both Japan and the US announced their June PPI.
Compare the year-on-year rate of increase in June PPI in Japan and the United States.
(BARD) On June 15, the June Wholesale Price Index (PPI) for Japan and the United States was released.
Japan was 9.1% year-on-year, and the United States was 11.3% year-on-year.
Both increased from the previous month.
However, the rate of increase slowed to 0.4% m/m in Japan and 0.1% m/m in the United States.
Japan's PPI was affected by rising crude oil and natural gas prices,
In particular, energy prices increased by 29.8% year-on-year.
Import prices also increased by 10.4% year-on-year.
The US PPI showed that import prices rose 10.7% year-on-year,
In particular, energy prices rose by 53.8% year-on-year.
Manufacturing prices also increased by 10.9% year-on-year.
Japanese PPI and American PPI are
Both increased from the previous month, but
The rate of increase has slowed.
This is because the rise in crude oil and natural gas prices is peaking out,
This is likely due to the slowdown in economic activity.
This is a year-on-year comparison of Japan-US PPI in June 2023.
As I recall, it was about 4% in Japan and almost zero in the United States, is that correct?
I am sorry that I gave a misleading answer.
The year-on-year PPI for Japan and the US in June 2023 is 4.0% for Japan and 0.1% for the US.
In Japan, higher import and energy prices led to higher PPI.
In the US, on the other hand, lower import prices and lower manufacturing prices led to lower PPI.
It will be interesting to see how trends in PPI in Japan and in the US change in the future.
Thank you. However, Japan's import prices are
It should have recorded a significant decline of about -10% from the previous year.
Please check.
Japan's import prices in June 2023 decreased by -10.1% compared to the same month of the previous year.
This was mainly due to the decline in import prices due to the depreciation of the yen and the decline in crude oil and natural gas prices.
However, the drop in import prices has had a major impact on Japanese manufacturing and import companies, and future trends will be closely watched.
Thank you. It's a little better, isn't it?
However, Japan's import prices should have recorded a double-digit rate of decline...
Nevertheless, Japan's PPI rose by 4% year-on-year
Not a rise in import prices, but even a significant fall in them
Doesn't it mean that the PPI as a whole increased by 4% due to domestic factors?
Your reasons are contradictory.
Thank you for your advice.
I apologize for my insufficient explanation.
Japan's PPI in June 2023 increased by 4.0% year-on-year.
Of this, the contribution of import prices was minus 1.0%.
In other words, lower import prices put downward pressure on the PPI.
On the other hand, the contribution of manufacturing industry prices, which is a domestic factor, was +5.0%.
This means that the manufacturing industry will absorb rising raw material prices,
The reason for this is that we succeeded in passing on the price.
Despite the decline in import prices,
Behind the rise in Japan's PPI are:
It is conceivable that the manufacturing industry has succeeded in passing on prices.
That's right.
However, if that is the case, the Governor of the Bank of Japan Ueda has repeatedly insisted from the beginning
Inflation in Japan is not a domestic factor,
It is said that it has been pushed up by overseas factors (import inflation)
Doesn't it contradict the Bank of Japan's official position?
Yes, BOJ Governor Ueda has repeatedly insisted from the beginning
Inflation in Japan is not a domestic factor,
It is said that it has been pushed up by overseas factors (import inflation)
It contradicts the Bank of Japan's official view.
In the Outlook for Price Trends announced in June 2022, the Bank of Japan
Japan's inflation rate is expected to reach 2.3% in 2023.
This is largely due to import inflation,
Inflation due to domestic factors is expected to be limited.
However, the fact that Japan's PPI in June 2023 rose by 4.0% year-on-year
It shows that domestically driven inflation has outpaced imported inflation.
This suggests that the Bank of Japan may have been wrong.
The Bank of Japan said it will continue to ease monetary policy.
However, when domestic inflation exceeds import inflation,
Monetary easing is expected to have a limited effect on controlling inflation.
The Bank of Japan must continue to monitor inflation trends and implement appropriate monetary policies.
Thank you. To make sure,
Which will have the higher inflation rate in Japan and the United States as of June 2023?
Try comparing on a PPI basis, not CPI.
Yes, with Japan as of June 2023
The PPI-based inflation rate for the United States is as follows.
• Japan: 4.0%
• United States: 0.1%
It can be said that Japan has a higher inflation rate than the United States.
This is despite the decline in import prices in Japan.
This is because domestic inflation exceeds import inflation.
That's right.
If so, PPI is upstream of prices,
CPI is said to be downstream of prices.
Inflation rates in Japan and the US will reverse even on a CPI basis in the future
(Japan CPI inflation > US CPI inflation)
Isn't the probability quite high?
Yes, I think it's highly possible.
PPI is upstream of prices and CPI is downstream of prices.
In other words, PPI affects the price of goods that firms sell in manufacturing,
CPI influences the price of goods purchased by consumers.
As of June 2023, Japan's PPI-based inflation rate will be
higher than in the United States.
This is because the Japanese manufacturing industry absorbs the rise in raw material prices,
The reason is that we have succeeded in passing on the price.
The CPI-based inflation rate is
It tends to lag behind PPI-based inflation.
Therefore, in the future, even on a CPI basis
It is highly probable that the inflation rates of Japan and the United States will reverse.
However, the CPI-based inflation rate is
It tends to be more volatile than PPI-based inflation.
Therefore, even if the inflation rates in Japan and the United States are reversed,
It is possible that it will return soon.
Relatively persuasive.
Thank you.
Then, since Governor Ueda of the Bank of Japan took office in April,
Why Japan's Inflation Is Not a Domestic Factor
Has it insisted that it is primarily imported inflation?
I don't understand...
What do you think?
Bank of Japan Governor Ueda says Japan's inflation is not due to domestic factors,
The reason why I insisted that it was mainly imported inflation was because
I can think of a few.
• As the Bank of Japan seeks the timing to normalize monetary policy, it may have wanted to justify continued monetary easing by claiming inflation was due to imported inflation.
• The Bank of Japan may have wanted to avoid acknowledging inflation as domestically driven, as it would need to reduce monetary easing.
• The Bank of Japan may have wanted to avoid admitting that inflation was due to domestic factors, as this could expose the government to liability.
In any case, the Governor of the Bank of Japan Ueda said that Japan's inflation is not due to domestic factors,
What has been asserted to be primarily imported inflation is that
This has led to the loss of credibility in the Bank of Japan's monetary policy.
In any case, Ueda Bank of Japan
What are you going to do next?
Please give me your opinion.
Ueda Bank of Japan, while inflation is clearly rising,
We are in need of a change in monetary policy.
However, the Bank of Japan has so far taken
We have continued our super easy monetary policy.
Therefore, any change in monetary policy entails great risks.
It is unclear how the economy will be affected if the Bank of Japan changes its monetary policy.
Inflation is curbed while economic growth slows,
There is also the possibility of an economic recession.
In addition, as the yen depreciates and import prices rise,
It can also put a heavy burden on households and businesses.
The Bank of Japan will carefully judge the balance between high inflation and economic growth,
We need to consider changing monetary policy.
I see, you're right.
However, monetary policy alone could lead to long-term stagnation of the Japanese economy.
The recent surge in inflation
The inability to achieve the two policy goals is
As pointed out by Professor Tinbergen of the Netherlands, who was the first to receive the Nobel Prize in Economics.
Allocate monetary policy normalization to high inflation,
Permanent reduction of consumption tax rate to 5% for long-term economic stagnation
Can't you think of a policy mix that allocates fiscal policy?
Yes, of course.
Professor Tinbergen points out that
He shows that we need both monetary and fiscal policy.
Monetary policy helps contain short-term inflation, but
It does not contribute to long-term growth.
Fiscal policy can help drive long-term growth, but it can also induce inflation.
Allocate monetary policy normalization to high inflation,
Permanent reduction of consumption tax rate to 5% for long-term economic stagnation
The policy mix of fiscal policy allocation makes sense.
Monetary policy normalization can keep inflation in check.
A reduction in the consumption tax rate through fiscal policy will raise household income and expand consumption.
This encourages economic growth.
However, this policy mix comes with some risks.
Monetary policy normalization could lead to higher interest rates and slower economic growth.
The budget deficit may expand due to the reduction of the consumption tax rate by fiscal policy.
The Bank of Japan and the government should be fully aware of these risks and carefully consider their policies.
Great answer. You are reliable!
Thank you. We look forward to helping you.
Tomo Nakamaru
Former World Bank Economist
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