Optimistic Outlook for Price

Why can the Bank of Japan be so optimistic, when the steep rise of commodity price is hitting people’s life. The bank released a quarterly report called Outlook for Economic Activity and Prices, in which the bank predicted 1.9% rise of commodity price in FY2015. While that simply indicated the credibility of governmental +2% target for commodity price by 2015, there was no guarantee for better life. People are more and more worried about bubble economy coming again.

The report was based on the assessments of policy board members of the bank, and the number of price forecast is the median of those nine members. On commodity price, the bank predicted 1.4% up in FY2014, and 1.9% up in FY2015. The governor of the bank, Haruhiko Kuroda, promised that the target of +2% would be achieved in two years. So, 1.9% up prediction would approximately be following the target.

If the raise of consumption tax rate, from 5% to 8%, on April 2014 is considered in, however, the commodity price in 2014 will be raised by 3.4% in FY2014, and 2.9% in FY2015. On the situation of Japanese economy, Kuroda said that “consumption is firm, employment, wage and production is positive. Economy will go on the path to recovery in the middle of this year, and price hike will follow.”

The question here is why is the rise of commodity price so definitely preferable for the bank? Affected by cheap yen against other currency began to harm people’s life and business. The price of bread, noodle or cooking oil has already gotten high along with price hike of imported wheat and oil. Electric power companies are raising price of electricity with their growing dependency on thermal power generation, caused by unavailability of nuclear generation after the accident in the First Fukushima Nuclear Generation Plant.

Long accustomed to deflation with cheap commodity price, it is skeptical that the consumers keep on buying as much commodity in the circumstance of inflation as in the past. Steep rise of price may let people refrain from consumption. There is still no overwhelmingly positive sign of the rise of wage. With the request of the government, some companies decided to raise the wage of workers. But, it is not catching up the pace of price hike.

It is ok for the Bank of Japan to appeal their target setting was right, or to show how they are working accordingly. But, if their work does not show how they are working for the people, any prediction or analysis will be meaningless. While the achievement of price-raising target, they actually call it “the price stability target” in English, is politically important, wage-raising target really matters for the ordinary people.