Japan: inflation falling significantly, and without restrictive monetary policies

In Japan, St. Paul Miki, patron saint of those lands, performed a miracle: without restrictive monetary policy, inflation drops significantly. Or is the reason not a miracle, but something else?

Japan's annual inflation rate fell unexpectedly to 3.2% in May 2023 from April's three-month high of 3.5%, missing market expectations of 4.1%. The cost of furniture and household utensils slowed down (9.6% compared to 10.0% in April), while the prices of fuel, electricity and water decreased for the fourth consecutive month (- 8.3% vs -3.8%), mostly due to electricity (-17.1% vs -9.3%).

Inflation remained unchanged for both housing (1.2%) and education (1.3%). At the same time, prices increased for transportation (2.2% vs 1.8%), clothing (3.9% vs 3.8%), medical care (2.1% vs 1.7% ) and miscellaneous expenses (1.3% vs 1.2%). Furthermore, food prices recorded the largest increase since September 1976 (8.6% against 8.4% in April).

Core inflation also eased to 3.2% in May from a three-month high of 3.4% in April, versus a 3.1% forecast, falling outside the Bank of Japan's 2% target for the 14th month. On a month-on-month basis, consumer prices were flat in May, following a 0.6% increase in April, the fastest pace since April 2014.

Here is the short chart

And a medium-term vision

The fact that core inflation corresponds to overall inflation means that above all the endogenous dynamics due to the adaptation of wages to the previous energy shock are now alive. No one likes to get poorer in real terms.

But how, Japan, which does not implement restrictive monetary policy, which buys government bonds to keep the cost of public debt under control, which has a 260% debt/GDP ratio, manages to contain inflation better than the ECB with its continuous rate hikes? Isn't it that, perhaps, external inflation does not require monetary tightening to be controlled, so that then it is enough for the cost of energy to fall to bring it under control?

I ask, for a friend…

---

---

The article Japan: inflation on the decline, and without restrictive monetary policies comes from Scenari Economics .

---

This is a machine translation of a post published on Scenari Economici at the URL https://scenarieconomici.it/giappone-inflazione-in-calo-sensibile-e-senza-politiche-monetarie-restrittive/ on Fri, 23 Jun 2023 09:30:12 +0000.