Inflation might be of emerging concern to the US, but in Japan it’s a real problem now, which shows no sign of slowing.
Figures released yesterday show that Japan’s wholesale prices again rose strongly in April, approaching the 30 year highs seen in March.
The Bank of Japan said producer prices rose at an annual 3.7% in April, down slightly from the 3.9% rate in March, which was the fastest advance in three decades.
That was a little above market expectations.
Although there’s no strong correlation with consumer prices, there’s every chance the PPI numbers mean that Japan’s CPI in April was again around 1.2% on an annual rate, after the cost of food and oil is omitted from the calculations.
But slowing levels of economic activity remains an equal or greater worry for Japanese business and the Bank of Japan.
The central bank said in its semi-annual report last month that wholesale inflation will probably rise 2.5% in the year to March 2009 and consumer prices will climb 1.1% and the bank cut its growth forecast to 1.5% for 2008-09 from the previous forecast late last year of 2.1%.
That slowdown in growth is why the central bank dropped any reference to interest rates from its half yearly outlook, even though inflation is now at a level in Japan that usually demands a rate rise from the hawkish BoJ.
The slowdown is coming from fading sales to North America, Europe and Asia. Exports are still growing, but the rate of increase slowed sharply in March from February as demand for cars, consumer products and capital equipment fell from the US and Europe. Exports to the US, Japan’s major export market, have been falling for six months or more.
Higher iron ore and coal prices will mean greater cost pressures for car companies, cement groups and power companies. Toyota is forecasting a possible 20% drop in earnings in 2009 mainly due to higher costs and the sales slowdown in North America.
Food prices are still rising. Consumer prices, excluding fresh food rose 1.2% in March, the fastest growth rate in a decade.
Economists say that had a controversial petrol tax been in existence in April (it was dropped for a month because of political wrangling before being reinstated on May 1) the rise in wholesale inflation would have been closer to 4% than the reported 3.6%.
But if inflation and higher food and petrol prices is making Japanese businesses, consumers and policymakers nervous, spare a thought for the UK where producer prices are surging, dragging consumer inflation up with it.
Consumer prices rose 3% in April, but manufacturers’ prices rose at a 20 maximum of more than 7% in the same month as rising oil and food costs continued to surge through the economy.
The house market is imploding, slowly, as prices fall, mortgage lending drops, bad debts grow (especially at the nationalised Northern Rock bank) and the Government is hit by tax demands and political instability.
Corporate earnings, especially in retailing, property, home building and commercial property are under pressure. Besides falling home prices, retailing and other commercial property values are being marked lower.
Big property and retailing groups, Liberty International and British Land have written down the value of their huge holdings by well over 2 billion pounds since last October.
British banks are facing falling earnings, some need capital, others are writing down the value of mortgages and US subprime debts, and the bank of England has a 100 million pound life support system in place now to try and maintain liquidity to troubled financial groups.
There’s rising fears that the British Government is facing a huge rise in its borrowings and the budget deficit will breach the guidelines of 4% or more of GDP.
As in Japan, the US and across Europe, it’s the soaring cost of fuel and food that’s driving prices higher, helped (as in the US) by the falling value of the British pound.
Prices for goods leaving UK factories rose at their fastest pace in more than 20 years in April (Like producer prices, or what the Poms call output price inflation).
Concerns about profits and sales were added to by a growing list of warnings that rising gas, electricity and other charges, already in the system or about to happen, will further add to the price pressures.
The costs of milk, bread and meat are rising.
Because of rising energy and other input costs British manufacturers’ costs in April were 23% above where they were a year ago, with food costs up sharply for manufacturers and retailers alike.
Petrol and oil costs are up by well over 60% in the UK (6.4% in April alone); the falling pound (down 12% over the past year) is amplifying the rising cost of oil and imported foodstuffs (plus metals and other manufacturing inputs).
Import costs rose 10% over the past year for the UK: food imports are costing 20% more.
UK consumer prices climbed 3% last month from the same month in 2007, and compared to a 2.5% rate in March.
It was the worst result for 13 months as prices rose by 0.8% across the country in April alone, the worst monthly rise for seven years.
UK economists say the rise means interest rate cuts are now off the agenda for the Bank of England which is grappling with the slumping property market, flailing banks and an economy rapidly slowing.
The central bank left its key rate steady last week at 5% and there’s no way economists can see it changing now until the northern autumn, given the conflicting messages from the economy.
Inflation is now within 0.1% of
