Japanese inflation is rocketing higher, and has been persistent above 3%. In April underlying, core-core, CPI jumped above 4%.
As I said earlier, and have many times before, the Bank of Japan insists that current high levels of inflation are transitory. The Bank says current CPI levels are caused by cost-push factors, not demand-pull, and that until wages rise to pull inflation along they expect the rates of price growth to decline from around September / October this year. And hence the Bank is not planning to tighten policy any time soon.
USD/JPY barely moved in response to the data, showing a bit of a dribble lower now, but so far not much:
Cost-push inflation and demand-pull inflation are two types of inflation that arise from different economic factors. Here’s a comparison between the two:
Causes:
- Cost-Push Inflation: Cost-push inflation occurs when there is an increase in production costs, such as wages, raw materials, or energy prices. These cost increases lead to a decrease in the supply of goods and services, causing prices to rise.
- Demand-Pull Inflation: Demand-pull inflation occurs when there is an increase in aggregate demand for goods and services. This increase in demand outpaces the economy’s ability to supply goods and services, resulting in upward pressure on prices.
Key Drivers:
- Cost-Push Inflation: The main drivers of cost-push inflation are factors like rising labor costs, increased production costs due to higher commodity prices, or government regulations leading to increased costs for businesses.
- Demand-Pull Inflation: Demand-pull inflation is driven by factors such as increased consumer spending, government spending, investment, or expansionary monetary policies that stimulate aggregate demand beyond the economy’s productive capacity.