Japan’s core consumer prices have dropped to a four-year low, intensifying concerns over stagnant economic growth but also setting the stage for a bumpy recovery. Official data showed core inflation, which strips out volatile fresh food prices, fell sharply as weak domestic demand and lingering pandemic-era subsidies pushed prices lower. The protracted period of deflationary pressure highlights the problems that the Bank of Japan still faces in achieving its elusive inflation goals on a sustainable basis. But economists warn this period of cooling is probably a temporary lull before an impending economic storm.
A huge global energy shock is the main driver for a turnaround that is expected. Surging crude oil prices, broken supply chains and a falling yen are sharply increasing the cost of fuel and raw material imports for the resource-poor country. The low numbers reflect the economic sluggishness of the past. But the brewing energy crisis is ready to force prices upward, suddenly. But experts say this imminent rebound will not be an indication of healthy, demand-driven economic growth. Instead, Japan is facing the threat of cost-push inflation, with everyday living costs rising while wages remain stagnant, squeezing household purchasing power and presenting monetary policy-makers with a difficult dilemma in the coming months.