Why rising producer costs have not fed through to consumer prices in Japan
What’s going on? Japan is not insulated from global trends. In October producer prices rose by 7.9% year-on-year, the largest single increase since 1980. The pickup was overwhelmingly led by higher import costs, which rose by 38% in yen terms. The prices of petroleum products and lumber rose by 45% and 57%, respectively, compared with the same month last year.
Entrenched expectations built up through decades of little to no inflation play a big role in explaining why rising producer costs have not fed through to consumer prices. Domestic companies are notoriously unwilling to pass on increases in the prices of imports to consumers. At a press conference in October Kuroda Haruhiko, the governor of the Bank of Japan, attributed this reluctance to habits picked up during the country’s periodic bouts of deflation.
The Bank of Japan was an early adopter of zero-interest-rate policies and bond-buying programmes, tools that have since been used elsewhere in the rich world as interest rates hit rock-bottom after the global financial crisis of 2007-09. The absence in Japan of the same inflationary pressures apparent across other advanced economies once again makes the country a laboratory for economists.
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