How 'transitory' is Japanese inflation?

From flour to fridges: Price pressures loom, but BOJ and experts say they won't last

Nikkei -- May 16
For over a year, the Federal Reserve insisted that the rise in U.S. inflation was "transitory," while evidence mounted to the contrary. It dropped the claim in November and the word is now a punchline for critics of the central bank, who say it should have acted to tame prices sooner.

Cross to Japan, where inflation this year is expected to hit 2% after three decades of basically no rise at all. Bank of Japan Gov. Haruhiko Kuroda last month sounded a lot like his opposite at the Fed, Jerome Powell, when he told the Japanese parliament he would stick to his loose monetary policy.

"There is no need to tighten monetary policy in response to a transitory trend, as opposed to a sustained one," Kuroda said.

The latest consumer price index data, due Friday, is a key focus for market players this week. According to 10 economists polled by Nikkei, core inflation, which in Japan excludes prices for fresh food, is forecast to rise to 2% in April from 0.8% in March amid global commodity shortages following the COVID pandemic and the Russian invasion of Ukraine.

Data on Monday showed Japan's wholesale prices jumped 10% in April from the same month a year earlier, the biggest increase in at least 40 years.

Hitting 2% in the CPI is a key policy goal of the BOJ as it tries to lift the nation out of deflation, but the central bank and most private-sector economists predict that a rise to that level will be short-lived and that Japan will return to disinflation. They point to persistently weak wage pressure in Japan, and the legacy of deflation, which has deeply affected how people react to the price rises they do see.

Average wages increased only 0.3% last year, according to a labor ministry survey, as annual negotiations involving large corporations yielded a wage increase of only 1.86% -- falling short of 2% for the first time in eight years. Both the BOJ and most private-sector economists expect only a gradual increase. The BOJ predicts that core inflation will average 1.9% in fiscal 2022, then retreat to 1.1% in fiscal 2023 and 2024. ...continue reading