Seems to be a work of fiction
Recently inflation has been bothering me. Well, not inflation itself, but rather the official inflation figures.
Apparently prices in Japan are dropping again, and are down 0.4% compared to last year.
The government has a target to increase inflation to around 2% a year.
On a personal level, deflation sounds good. Everyday life gets cheaper, and our savings and investments go further.
However, the official inflation figures don’t seem to match up to my personal experience:
- Food prices in the supermarket seem to be going up.
- Consumption tax went up by 60%, and may be going up again by a further 25%.
- Pension contributions are going up.
- The public gym I go to is raising prices by 26% in October.
- Train fares went up recently on my train line.
My personal rate of inflation does not seem to match the official government figures!
Maybe (probably) I am a strange person whose spending does not reflect the average consumer in Japan. This is likely, but doesn’t completely explain the difference.
I mentioned on Facebook that I am reading a book called Own the World (review coming soon) and it has a very interesting chapter on inflation. Then, just a day later, I saw this post on Financial Samurai. The two are very similar.
The gist of their arguments is:
- inflation allows governments to reduce public debt without causing public anger
- official inflation figures have been modified to seemingly reduce inflation
- to combat inflation it is necessary to invest in order to stay afloat, as pensions and incomes are losing value over time
The seeming disconnect between official inflation numbers and my personal experience is something that has puzzled me for a while now, but these arguments seem to make sense and explain a lot.
On the other hand, this article was also published recently.
How about you? What do you think about Japan’s inflation figures?
I don’t have a comment on inflation, however I tend to take everything from Financial Samurai with a bucket of salt nowadays. Sam’s blog is so filled with affiliate marketing links that I always have to believe each one of his posts has an agenda. In this case, his marketing links to invest in real estate or stock. I don’t blame the guy for monetizing his blog, but I think people should be aware of his strong conflict of interest in most of his posts. (Which is sad because most of the time he makes very good points. The over-indexing on affiliate marketing just dilutes his point, which is why I stopped reading his stuff a while ago)
Fair enough, SB! He’s amazingly productive (and I’m guessing, profitable).
I was mainly struck by the timing (read his post just a few hours after reading the same thing in the book) and thought it was a decent (free) summary.
Anecdotal evidence is anecdotal and memory is a faulty medium… but I have seen very little price inflation from the time I first came to Japan (late 90’s) and now. In fact, for many things (especially imported food items) prices have come down significantly. Recently I have noticed that Tokyo seems to be experiencing some price inflation but that is probably because the economy is good and the city is flooded with Abenomics money. Also tourist dollars are pushing up hotel prices. Probably not the case in the rest of the country.
I have to admit, living in a country with such low inflation is really great… I hope (but strongly doubt) that it will continue into the future.
On a macroeconomic level, Japan is definitely experiencing deflation again, which is usually 6 months or more ahead of what we as consumers experience on a microeconomic level.
Since deflation has returned around April 2016, we will start seeing the trickle down effects of decreased prices in another month or so.
On another note, deflation is very good for us residing in Japan but investing in overseas economies with inflation. This essentially boosts our total returns =)
I completely agree that deflation is good for savers and investors (especially if we can invest in foreign assets and the yen goes back down eventually).
My question is whether the government’s CPI figures actually reflect cost of living in Japan.
The only prices I have seen come down are oil (admittedly large), interest rates (so cheaper mortgages) and electronics.
Pretty much everything else (rent, taxes, food, transport, etc.) seems to be going up.
So my point is that for a normal consumer (who probably isn’t buying a new TV every month) is Japan really seeing deflation, or is inflation a reality?
My take home pay hasn’t really changed in 16 years, but prices have definitely gone up in shops, services, and restaurants.
I am also thinking about inflation these days, not in Japan but the US
I believe Financial Samurai is correct
The US government have borrowed too much, the US dollar as the currency of reserve will at some stage soon lose its status, its gradually falling in value, and they are hiding the real inflation rate in the US
I don’t know, but maybe the items you listed are not included in the CPI. If they are the items you spend your money on then the inflation figures are not so relevant to your personal spending. My spending seems to be going up too. Supermarket prices are up, Costco definitely up. School fees up.
Rent in Sendai is most definitely up–word on the street 3 years ago was that it was a “disaster bubble,” but that bubble has yet to pop. All the temporary housing is supposed to be vacated this year and condos are going up like crazy around me, so if it happens it’ll be soon. Street prices in effect went up 3 percent with the raised consumption tax and will go up another 2 percent next year, was it? Also, all the mom n’ pop restaurants took the tax hike as an opportunity to update their prices, which were honestly quite cheap before and normal now. Add that in with all the national chains moving in lately with their Tokyo prices intact and the high local taxes, and Sendai seems a lot more expensive than it used to… if you let it be. You can still live cheap here, but inflation feels very real.
Luckily, consumption tax is billable for anyone performing services as a non-employee, and you don’t have to pay that back to the government until your gross billings exceed 10 million yen for the year. Keep sales under that threshold working for Japanese clients and you effectively make 8 percent more; it’s a bonus for not being rich. Anyone looking to start a side business (or go freelance contractor) should keep that in mind.
Isn’t it widely known that J-gov fudges figures like this all the time. With such statistics as a 94.9% conviction rate for murders. What about the un-employment rate of 3.2%. So the J-gov brags with big BOLD headlines of a 3.2% unemployed rate, yet with tiny microscopic foot note we find that 40% of 15-65 years are part-time workers. Massive UNDER-employment problem. Its really hard to take “official” figures seriously from J-gov.
I am not knocking Japan when I say this, but our perception of Japan is very skewed sometimes in its policy and openness. As flawed as the US may be it is considered a “democracy” and is ranked higher than Japan which is classified as a “flawed democracy”. Not to mention Japan is ranked 72nd in the world in terms of freedom of the press. Not good at all. Just because we feel safe and have comfortable lives here doesn’t mean J-gov is telling the truth. I have heard it is awesome to live in Singapore but largely because it is just a super nice North Korea. I am not judging Japan (or Singapore) merely agreeing that there is plenty to suggest reported inflation rate in some form or another are a work of fiction.
I definitely feel pain at the supermarket. For years prices seemed stagnant, then they rose..and again. If the price remained the same, then the package shrunk. Food costs are up along with other costs. Perhaps some areas have lower housing costs, but that doesn’t help those of us with old loans on property that has dropped drastically in value. And our income has dropped. This isn’t a good combination.