Inflation In Japan Surpasses U.S., But Wage Growth Lags

(CTN News) – For the first time in nearly eight years, consumer inflation prices in Japan grew faster than those in the U.S. last month.

However, slower pay gains still remain an obstacle to the Japanese government’s goal of beating deflation by the end of the year.

On Friday, the official Japanese data showed that consumer prices, including fresh food, increased by 3.3% on the year in June, compared to a 3.3% increase in the United States, according to the official data released by the government.

The Bank of Japan’s job will become more difficult if the Japanese inflation stays high without enough wage growth to cover it.

During the meeting of the policy board held in April, the central bank outlined in its forward guidance that it would strive to achieve its 2% inflation target “accompanied by wages increases,” which would be a key factor in determining whether the BOJ would wind down its quantitative easing program.

Despite the rise in interest rates in the U.S., Japan’s inflation remains high, while in the U.S., the rise in interest rates has reduced prices.

In the medium term, however, American and eurozone prices have risen by 16% to 17% since global inflation began to pick up in January 2021, compared with just 5% in Japan over the same period.

Furthermore, Japan differs from other countries in the question of whether or not these increases are accompanied by an increase in worker compensation.

In the United States and Europe, hourly wages have grown 14.5% and 7.4% over the past five years, respectively, while in Japan they have grown 4.5%, according to the Organisation for Economic Cooperation and Development.

The gap is most evident in the area of services, where labor costs are a major factor.

For the first time in seven months, goods inflation excluding fresh food in Japan slowed in June to 4.9%, while services inflation excluding imputed rent slowed to 2.3%.

As a result of rate hikes by the Federal Reserve, U.S. services prices excluding rent increased 3.2% in June, down from the 8%-plus increase in September 2022. There was an increase of 5.4% in the inflation rate of services in the eurozone.

The cost of goods continues to be the primary driver of inflation in Japan, as companies pass on the increased cost of materials and energy to consumers.

Japan’s services inflation appears to be at a slower pace than other economies, suggesting that the economy has not yet reached a point of sustained price and wage growth.

Labor shortages in Japan are contributing to higher wages in some service sectors, but it is unclear whether broad-based gains will follow. In the event that the rate of pay growth slows down, household budgets may suffer, potentially affecting consumer spending.

As import prices are already trending lower, inflation appears to be on the decline. Prices excluding fresh food and energy rose by 4.2% in June, down from 4.3% in May, for the first time in 17 months.

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