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Why is inflation still so low in Japan?

The continued weakness in Japan’s inflation is partly due to the recent plunge in mobile phone tariffs and the long lags between global energy prices and household utility bills. Indeed, inflation is set to rise next year. But more muted cost pressures in manufacturing than in other advanced economies coupled with the reluctance of Japanese firms to raise output prices mean that inflation won’t surge as it has elsewhere.
Marcel Thieliant Senior Japan, Australia & New Zealand Economist
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Japan Data Response

Japan Flash PMIs (May 2022)

While the flash manufacturing PMI was little changed in May, the details suggest that supply shortages worsened yet again, weighing on output and lifting prices.

24 May 2022

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More from Marcel Thieliant

Australia & New Zealand Economic Outlook

Rising inflationary pressures to prompt tightening

Domestic demand is set to rebound from recent lockdowns and labour markets should remain tight. Meanwhile, soaring energy and food prices will keep inflation high for a prolonged period. To be sure, the Reserve Bank of Australia won’t respond to high headline inflation until wage growth picks up in earnest. However, with severe staff shortages and limited immigration, the bargaining position of workers is strong and we expect Australia’s wage growth to reach 3% by the end of next year. We expect the RBNZ to hike rates to 1.5% next year and the RBA to start lifting rates in early-2023.

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While employment plunged yet again in September, hours worked started to rebound and the end of lockdowns will result in a rapid recovery in the labour market over coming months.

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Australia’s exports to China are even more vulnerable to a slowdown in the property sector than they were before the trade spat as iron ore has gained in importance. We think that China’s steel demand will fall before long and even if it doesn’t, a shift to electric arc furnaces is a big threat to Australian miners.

13 October 2021
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