Even Japan is fighting inflation now

By US standards, Japan’s inflation rate in May might feel paltry. Year on year, the consumer price index rose 2.5%, compared to a heated 8.6% in the US that same month.

But to a country that has grown unused to inflation over the past three decades, even 2.5% hurts. Japan’s current encounter with inflation shows how factors like the Russia-Ukraine war, supply chain snags, and oil prices are combining to affect even one of the world’s most deflation-prone economies.

The cost of sushi in Japan is going up

After several financial institutions collapsed in the late 1990s, Japan fell into a prolonged spell of deflation; except during some surges of commodity prices, the inflation rate remained negative until around 2015, and in the low vicinity of 1% thereafter. Japan’s GDP and its citizens’ wealth stagnated. Wages experienced relatively little growth as well — which makes this current bout of inflation even harder to deal with.

The signs are all over. The price of Umaibo, a puffed corn snack, has gone up 20% from its original 10 yen ($0.08) — a price it maintained for more than 40 years. Sushiro, Japan’s leading conveyer belt sushi chain, is hiking the price of its 110-yen plates after four decades to 120 yen. Schools have replaced expensive fresh fruit with cheaper jelly, and the cost of onions has doubled within a year.

This puts Japanese policymakers in a bind. Discontent among voters who have no recent experience of inflation is such a clear political danger that the Japanese government earmarked $21 billion to relieve the pinch of higher food and energy costs. At the same time, a cycle of low-to-moderate inflation could rouse the economy. Hirofumi Suzuki, an economist at Sumitomo Mitsui Banking, told Bloomberg: “This is probably the best chance for the economy to turn inflationary in a long while.”

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