March 26, 2023

In Japan, Prices Stabilize for the First Time in Months

TOKYO — In the latest sign that Japan may be inching out of its deflationary slump, data on Friday showed that core consumer prices were flat in May compared with the previous year, though lackluster household spending signaled that the recovery still needed time to take hold in the wider economy.

It was the first time in seven months that Japan’s core consumer price index, which excludes volatile fresh food prices but includes energy, did not fall. The results were largely in line with economists’ expectations. In April, prices fell an annual 0.4 percent.

The data provide a further lift to Prime Minister Shinzo Abe’s campaign to bring an end to 15 years of deflation in Japan, during which time the country’s economy fell behind that of China’s.

In his six months in office, Mr. Abe has focused much of his energy on tackling Japan’s falling prices — which he says are both a cause and a symptom of waning profits, wages and consumption — with a mix of aggressive monetary easing, government spending and economic reforms.

But Mr. Abe’s bid has reached a critical juncture in recent weeks, as initial investor enthusiasm over his economic programs gave way to a colder-eyed look at the difficulties of turning around an economy so entrenched in deflationary expectations.

Japanese consumers have been the most wary of Mr. Abe’s recovery pitch. Separate government data released Friday showed that household spending fell 1.6 percent in May from a year earlier, dashing economists’ expectations of a 1.3 percent rise. A shortfall in consumer demand has been the biggest contributor to Japan’s deflationary woes.

And Japan’s so-called core-core consumer price index, which excludes both food and energy, fell 0.4 percent in the year to May, after a 0.6 percent annual decline in April, underscoring continued weak consumer demand.

Still, early data for consumer prices in Tokyo, seen as a precursor of nationwide trends, rose 0.2 percent in June, signaling that a turnaround could be near.

Industrial production rose by a robust 2 percent in May from the previous month, showing corporations a step ahead of consumers in the economic recovery. A weakening yen, another outcome of Japan’s bold monetary easing, has been a boon for the country’s exporters, which have seen profits soar.

Much hangs on how much corporate profit will trickle down to consumers in the form of higher wages and better job opportunities. Jobs data released Friday, however, showed the nation’s unemployment rate in April unchanged, at 4.1 percent.

Tokyo’s benchmark Nikkei index reacted positively to the data over all, jumping 3.3 percent in morning trade to 13,648.81. Japanese stocks surged 80 percent by mid-May in strong hopes for Mr. Abe’s economic turn, but have since fallen by as much as 20 percent before starting to edge back up.

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Japan’s Central Bank Holds Steady Amid Market Volatility

In a unanimous vote at the end of a two-day policy meeting, the bank’s board decided to stay pat on a policy to grow its base money, or the cash and deposits the bank holds, by between 60 trillion yen and 70 trillion yen a year ($600 billion to $700 billion a year), which in turn increases the funds that flow through the Japanese economy and encourages companies to borrow and invest.

The bank also raised its assessment of the Japanese economy, saying Japan’s economy was “picking up,” a slight improvement over its appraisal last month that the economy was “starting to pick up.” The brighter outlook came after revised government data showed Japan’s economy grew at a rate of 1.0 percent between January and March, faster than a preliminary estimate of 0.9 percent, due to stronger corporate capital and household spending

“Japan’s economy is expected to return to a moderate recovery path” thanks to resilient domestic demand and the effects of its aggressive monetary easing program, the bank said in a statement.

Since April, the Bank of Japan has embarked on monetary stimulus of an unprecedented scale in a bid to jolt the Japanese economy out of 15 years of deflation, part of a wider economic growth push introduced by Prime Minister Shinzo Abe.

Under Haruhiko Kuroda, its new governor, the central bank pledged to double Japan’s money supply in two years through aggressive purchases of government bonds and other assets. It also committed to a target to hit 2 percent inflation over the next two years, a goal that some economists say is overly ambitious in a country that has seen prices fall for 15 years.

In a sign of faltering confidence, one board member, Takahide Kiuchi, proposed replacing that two-year target with a less ambitious commitment to achieving 2 percent inflation “in the medium to long term.” That proposal was voted down by the other eight members on the bank’s policy board, according to the bank’s statement.

“It’s true that the road to 2 percent will be long,” Mr. Kuroda said at a news conference following the decision. To get there, he said, other facets of Prime Minister Abe’s economic growth program needed to kick in, bringing about a rebound in jobs, wages and demand. “Once the entire economy enters a positive cycle, we will see prices stabilize at 2 percent,” he said, adding that for now, the bank’s policy push was “on track.”

The central bank also held off from introducing measures to keep down Japan’s long-term interest rates, a move expected by some economists ahead of the meeting.

Yields on benchmark 10-year government bonds spiked in late May as prices of those bonds slumped, causing investor jitters over Japan’s ability to keep funding, and servicing, its colossal public debt. Those fears helped end a spectacular rally in the Japanese stock market this year, bringing several weeks of volatile trading.

The Nikkei 225 stock index fell almost 200 points, or 1.5 percent, in Tokyo on Tuesday, much of that loss coming after the central bank’s announcement, marking another day of turbulent trade

One measure floated by economists that might calm investor nerves had been to extend a low-interest loan program that would make it easier for financial institutions to buy government bonds even if interest rates started rising. But that runs counter to the bank’s goal of shifting corporate investment out of low-interest bonds to higher-yielding equities and borrowing.

Mr. Kuroda said that the board had discussed such measures, but ultimately decided fresh steps were unnecessary for the time being. He has said that the recent rise in long-term interest rates is a healthy reflection of inflation expectations, and does not pose an immediate threat to the Japanese economy.

He stressed that the bank has had a measure of success in reducing volatility in bond markets by conducting its bond purchases more frequently, in smaller amounts. He said that the bank would sustain those efforts, and would watch financial markets closely.

“We continue to be wary of movements in long-term interest rates, especially undesirable spikes in volatility, and will keep up efforts to reduce that volatility,” he said. “But the economy is on a solid path to recovery, and I expect financial markets to soon reflect that, and regain composure.”

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Economix Blog: Visiting the Doctor Less, but Spending More on Health



Dollars to doughnuts.

The average annual number of times Americans visit medical providers has been falling over the last decade, according to a new report from the Census Bureau. But their overall spending on health care is still rising.

Note: Data on medical services utilization are not available in the SIPP for 2006, 2007, and 2008. Source: U.S. Census Bureau, Survey of Income and Program Participation, 2001 Panel, waves 3, 6, and 9; 2004 Panel, waves 3 and 6;and 2008 Panel, waves 4 and 7. Chart from Health Status, Health Insurance, and Medical Services Utilization: 2010, by Brett O’Hara and Kyle Caswell.Note: Data on medical services utilization are not available in the SIPP for 2006, 2007, and 2008. Source: U.S. Census Bureau, Survey of Income and Program Participation, 2001 Panel, waves 3, 6, and 9; 2004 Panel, waves 3 and 6; and 2008 Panel, waves 4 and 7. Chart from “Health Status, Health Insurance, and Medical Services Utilization: 2010,” by Brett O’Hara and Kyle Caswell.

Among Americans 18 to 64 years old, the average person visited medical providers 3.9 times in 2010, compared to 4.8 times in 2001.

Both healthy Americans and less healthy Americans reported going to the doctor less frequently in 2010 than they did in 2001:

Note: Data on medical services utilization are not available in the SIPP for 2006, 2007, and 2008. Source: U.S. Census Bureau, Survey of Income and Program Participation, 2001 Panel, waves 3, 6, and 9; 2004 Panel, waves 3 and 6;and 2008 Panel, waves 4 and 7. Chart from Health Status, Health Insurance, and Medical Services Utilization: 2010, by Brett O'Hara and Kyle Caswell.Note: Data on medical services utilization are not available in the SIPP for 2006, 2007, and 2008. Source: U.S. Census Bureau, Survey of Income and Program Participation, 2001 Panel, waves 3, 6, and 9; 2004 Panel, waves 3 and 6; and 2008 Panel, waves 4 and 7. Chart from “Health Status, Health Insurance, and Medical Services Utilization: 2010,” by Brett O’Hara and Kyle Caswell.

Visits to the doctor and other medical providers may be falling, but health spending is still substantially higher today than it was a decade ago, according to the Labor Department’s Consumer Expenditure Survey.

The typical household (including residents of all ages) spent $3,313 on health care in 2011, compared to $2,771 in 2001, after adjusting for inflation.

Sources: Consumer Expenditures Survey, Consumer Price Index.Sources: Consumer Expenditures Survey, Consumer Price Index.

Health care spending has generally been rising even as total household spending has stagnated or fallen in recent years. As a result, health care spending is eating up a larger share of total household budgets than it used to. As of 2011, the typical American household spent 6.7 percent of its total expenditures on health care.

Source: Consumer Expenditure Survey.Source: Consumer Expenditure Survey.

Almost every category of health care spending has been rising.

The average American household spent $768 on medical services last year, an increase of 3.1 percent from the year before. It also spent $1,922 on health insurance, an increase of 1.8 percent from the year before; and $134 on medical supplies, up 9.2 percent from the year before.

Annual household spending on prescription and nonprescription drugs fell 2.3 percent, however, to $489.

Spending growth on health insurance is slower than that for some other health care categories, but the base was so large to begin with that health insurance is accounting for a growing percentage of the typical household’s total health care spending. In other words, a bigger share of households’ health care spending is going through insurance companies as opposed to coming from co-payments and other out-of-pocket spending.

Source: Consumer Expenditure Survey. Source: Consumer Expenditure Survey.

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European Economy Grew Slightly in 3rd Quarter

Third-quarter real gross domestic product grew 0.2 percent from the previous three months in both the 17 euro-zone nations and in the 27 nations that make up the European Union, Eurostat, the statistics agency, said in Luxembourg. That was the same pace at which G.D.P. had grown in the second quarter. From a year earlier, seasonally adjusted G.D.P. increased by 1.4 percent in both zones.

By way of contrast, the U.S. economy grew by 0.6 percent in the third quarter from the second, while the Japanese economy grew by 1.5 percent.

It was Germany where the momentum was most pronounced, with output lifted by household spending and by businesses investing in machinery and equipment. Real, seasonally adjusted gross domestic product rose 0.5 percent from the second quarter’s 0.3 percent growth, and 2.5 percent from a year earlier, the Federal Statistical Office said in Wiesbaden. The second-quarter figure was revised up from the previously reported 0.1 percent.

In Paris, the French statistics institute, Insee, reported that the French economy grew by 0.4 percent in the third quarter, returning to growth after a 0.1 percent decline in the second quarter, as households spent more and industrial production rose. From a year earlier, the French economy grew 1.6 percent. The second-quarter figure was revised from the previous report, which showed growth as flat.

The preliminary data do not reflect growing evidence of a slowdown that began emerging this autumn.

Confidence is ebbing in Germany, according to a report Tuesday from the Z.E.W. institute. The institute’s economic sentiment indicator declined in November for a ninth straight month, dropping 6.9 points to minus 55.2 points, well below the historical average of 25.0 points and the lowest since the dark days of October 2008.

“World trade is weakening and the public debt problems in the euro zone and in the United States weigh heavily on business activity,” Wolfgang Franz, Z.E.W.’s president, said in a statement. “These risks could even gain more importance and thus could further harm economic growth in Germany.”

Citing painful budget-balancing measures that will weigh on growth, the European Commission last week cut its growth forecast for the 17 euro-zone nations to 1.5 percent this year and to 0.5 percent in 2012.

Olli Rehn, the European commissioner for economic and monetary affairs, said last Thursday that the European Union’s economic recovery “has now come to a standstill, and there is a risk of a new recession.”

Eurostat, the statistical office of the European Union, reported last Wednesday that euro-zone industrial production fell a steep 2.0 percent in September from August. The danger was reflected in a report Tuesday from Statistics Netherland showing that the Dutch economy shrank 0.3 percent in the third quarter from the previous three months — as well as in the sputtering output of the third- and fourth-largest euro-zone economies, Italy and Spain.

Italy’s economy is expected to shrink in the final quarter of 2011, the commission predicted.

Spain, with an unemployment rate of more than 20 percent, is also struggling. On Friday, the INE statistics institute in Madrid said the economy had stalled, growing not at all in the third quarter from the second, and had inched up only 0.8 percent from the third quarter of 2010.

Looking at the limited data available early Tuesday, Jonathan Loynes, an economist in London with Capital Economics, wrote in a research note that it appeared “with export growth generally slowing, it looks like domestic demand in the core economies might have picked up a bit.”

But the data are “all history,” he said. More forward-looking indicators, “suggest that the euro-zone economy is likely to drop back into recession” in the fourth quarter of 2011 “and beyond,” and risks even to gloomy forecasts “are shifting rapidly to the downside.”

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Economix: The Pinch of Food and Gas

Bureau of Economic Analysis, via Gluskin Sheff

5:38 p.m. | Updated with 20-year chart

Anyone who shops at the grocery store or fills up at the gas station has felt the pinch for several weeks now, and confirmation came earlier this week in the Commerce Department’s personal-income figures. They showed that real disposable income fell 0.1 percent, largely because of food and gas inflation.

David Rosenberg, chief economist and strategist for the investment firm Gluskin Sheff Associates, ran the numbers another way and found that more than 22 percent of wages and salaries were being spent on food or gas. That, he writes in his daily newsletter, is a level seen only twice previously since 1990. “Both ultimately landed the economy into recessions that ensnared discretionary household spending,” he writes.

Certainly, with real incomes falling and the prices of basic goods rising, this might not bode well for consumer spending and in turn, the fragile recovery.

The upside? “A new bull market in frugality, ‘trade down’ goods and private label is likely on its way again,” Mr. Rosenberg writes.

This post has been revised to reflect the following correction:

Correction: March 29, 2011

An earlier version of this post referred imprecisely to the precedents for the current level of wages and salaries spent on food and gas. The current level has been reached twice previously since 1990.

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