Japanese Deflation - But Where is Mama's Sushi?

Bloomberg.com has an article several hours ago, stating that Japanese prices declined 2.4% in August, a further decrease from July's fall of 2.2%.

However,  when one looks further into the article, it's mentioned that this price decline does not include fresh food. Later the article states that much of this "price deflation" was due to oil prices falling 50% or more from a high last year of $140+.

Food, particularly fresh food, makes up a meaningful percentage of the Japanese household budget. So do the costs of driving a car, much of which is due to the price of petrol. If prices are largely declining due to excessively speculative oil prices getting less speculative, that should actually be good news both for Japan's economy and it's citizens.

So basically the headline figure of a 2.4% price collapse is about as useful as last weeks leftover Raimon noodles. Further, toward the end of the article, it is stated that "excluding energy and food",  prices declined 9/10 of a percent, the same as in July. Evidently the food exclusion had do with processed food, not the fresh food produce that was originally excluded from the calculation. Now let's add in the item that's been continually excluded, fresh food. According to the "Ku-area of Tokyo" statistics bureau < ministry of internal affairs and communications >, preliminary figures indicate a fresh food price rise of 1% in August. So adding and subtracting all the price changes, leaves us with an actual price rise in August of 1/10 %.

Is this calculation accurate? Most likely not. But it's a better indication of the actual overall price changes in Japan than the fatuous 2.4% decline. Allowing for the statistical standard deviation of error in these guesses, one can reasonably conclude that prices haven't changed at all in Japan for August.

There, isn't that simple? You think they could have just told everyone this to begin with. No overall change in prices.

If this sounds confusing, you're not alone. Guido suspects the Bloomberg article was originally translated from Japanese with poor editing.

But there is more then just Bloomberg's story. Evidently many discretionary consumer items are collapsing in price. These include such things as clothes, electronic games, and furniture. However, the Bank of Japan claims that price falls are not leading to a decline in consumption.  This sounds contradictory. What's happening?

Well evidently, all these genius corporate decision makers believed the media  fantasy tales of better times and overproduced / overbought with an expectation of increased consumer demand. Then the demand never came, and they're stuck with all this excess inventory that they're now dumping.

Possibly much of this demand was anticipated to be coming from America. Maybe they believed all the Federal Reserve news releases about a springtime of  "green shoots". Perhaps we can blame all this on Bernanke.

Well one thing's certain. Somebody screwed up.

Some of this fall in prices for consumer discretionaries may be due to long term secular changes, particularly in clothing. For more on this, we would suggest you read Madame Zucco's article today entitled Declasse Fashion and the August 30 article The Sinking Sun, both on this website.

For the real meaning of price changes, yesterday's article See It, Kick It might be edifying, as would the September 21 article A Tale of Two Fools.

"Every extra thing you own, is extra trouble." - Japanese proverb