FT.com / Comment & analysis / Editorial comment - Inflation is good news for Japan

リンク: FT.com / Comment & analysis / Editorial comment - Inflation is good news for Japan.

Hooray for inflation! Rapid rises in the price of food and oil, combined with a slowdown induced by the credit squeeze, are bad news for most of the world. But for Japan – mired in deflation for the best part of a decade – they are also an opportunity to establish expectations of a sustained rise in prices.

Much higher prices for spaghetti, gasoline and other foods and fuels caused Japan’s headline inflation rate to hit the dramatic high of 1.2 per cent in the year to March 2008. That is low compared with the 1-3 per cent range most developed country central banks are comfort­able with, but the highest inflation Japan has had for 10 years.

Higher commodity prices are, in themselves, bad for the Japanese economy. One yen now buys fewer goods; Japanese consumers and companies are now worse off. Core inflation excluding food and energy is still stagnant, up only 0.1 per cent on the previous year, although the trend remains gently upwards.

The rise in headline inflation is an opportunity, however, because it implies a fall in real interest rates. As long as nominal interest rates remain at 0.5 per cent then the real rate is negative, which should stimulate economic activity and create the expectations that prices will continue to rise in the future.