Apparently it is time to celebrate inflation, however it might be defined. Inflation is looked on no longer as the bane of central bankers, but their reason to exist.  This is now near universal, as one after another nation is forced by central banks to appeal to debasement as economic salvation.  On the surface, it looks as if the Bank of Japan got exactly what it wanted: inflation where deflation had persisted. But, inflation was largely contained in energy and transportation, items directly related to the yen’s intended devaluation.

Utility expenses (fuel, light and water) were up 1% in June, and 5.7% Y/Y. Transportation costs were down slightly, but up 1.8% for the past twelve months. Official inflation minus food and energy remains stuck in the negative: -0.1% for June, -0.2% Y/Y.

Anecdotally, in consumer electronics, prices have been spiking higher without any growth in volume (which is technically how inflation is defined, paying more for less). Large TV prices were up 33% in June from March 2012; digital camera prices up 60% from January 2012. And showing just how this dangerous inflation-ideology is entrenched, we get these kinds of statements:

“PC prices are also moving higher, helped by increased sales of models loaded with Microsoft Corp.’s new “Windows 8” operating system and touch-panel capabilities. The average unit price jumped 23.0% from the low marked in October 2012. However, volume is still struggling to rise amid competition from Apple Inc.’s iPads”

PC makers and sellers in Japan are hoping to increase sales by dramatically raising prices in order to better compete with Apple products? There is more than a little awry with that thought process. I think it more likely that the above quoted passage should be rewritten to say, “PC makers and sellers are forced to raise prices due to the lower yen despite very tough competition from Apple”. The results of competition are not increasing prices, unless there is an exogenous pressure forcing the contrary.

Monetary policymakers have been trying to steer currency changes into economic results, and it has led to worsening problems in every location. The Japanese will have to pay higher prices for basic necessities without the expected parallel rise in incomes – meaning they become further impoverished by the Bank of Japan policies they just voted for (enthusiastically).

The weak yen is supposed to drive export growth, closing the loop into Japanese incomes, but Japanese businesses have been responding as they did in the 1990’s by offshoring production. The net result is pretty much like what we have seen in places like Brazil. The Japanese, however, seem resigned to their monetary fate where the Brazilians have been moved to at least attempt registration of dissatisfaction. Given the history of the “lost decades”, the Japanese are simply willing to try anything, no matter how much it hurts.

 

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