Last night Japan reported August CPI/inflation news that at least on the surface were astoundingly good: at 0.8%, the core CPI (excluding fresh irradiated food) was more than expected and higher than July's 0.7%. And yet, even the most absurdly clueless economist is silent this morning in their praise of Abenomics, which supposedly has succeeded in its one goal - bringing sexy inflation back. Why? Perhaps the reason is that whereas Keynesian inflation in which prices and wages are broadly if modestly rising as a result of a properly functioning monetary system, is indeed just what the Doctor of modern economics ordered, soaring input costs driven by FX differentials and current account flows, "offset" by plunging wages is precisely the opposite of what Abenomics was supposed to be. Which is exactly what is going on in Japan.
Because a more detailed look at the Japanese inflation number shows that the entire inflationary surge was due to a spike in food and mostly energy prices as gasoline prices rose to the highest since 2008: core core inflation, that which excludes food and energy) was down 0.1% from July, while September Tokyo core core CPI, a leading inflation indicator, was down a whopping -0.4% in August and -0.3% from a year ago. The reason: salaries in July extended the longest slide since 2010, with regular wages excluding overtime and bonuses falling 0.4 percent from a year earlier, a 14th straight drop.
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In other words, all that Abenomics' cratering of the Yen has succeeded in doing is causing gas and energy prices, and to a lesser extent food, to surge, just as we warned would happen in February [12]. And of course, to make a few US-based hedge funds investing in the Nikkei that much richer. From BBG [13]:
The yen’s 20 percent slide against the dollar in the year through August pushed up fuel costs. While the data point to early success for Abe, a sales-tax increase scheduled for April will add to the burden on households and risk dragging on the nation’s economic rebound. Abe is set to announce a decision on the levy on Oct. 1.
Gasoline prices rose this month to the highest since 2008, according to the industry ministry. The nation’s last operating nuclear reactor was halted for maintenance on Sept. 15, leaving Japan without atomic power for the first time since July 2012, and more dependent on imported fuel.
The yen’s 20 percent slide against the dollar in the year through August pushed up fuel costs. While the data point to early success for Abe, a sales-tax increase scheduled for April will add to the burden on households and risk dragging on the nation’s economic rebound. Abe is set to announce a decision on the levy on Oct. 1.
“Without pay increases, households’ purchasing power will weaken gradually,” said Taro Saito, director of economic research at NLI Research Institute in Tokyo. “Abe will have to keep up his campaign on companies for wage growth.”
Abe last week began meetings with business and trade union leaders to press his case for wage increases, key to the success of his effort to spur growth under his economic policies dubbed Abenomics.
Salaries in July extended the longest slide since 2010, with regular wages excluding overtime and bonuses falling 0.4 percent from a year earlier, a 14th straight drop.
Rising prices in the absence of higher incomes have dented consumer sentiment, which could undermine consumption.
Consumer confidence fell in August for a third consecutive month, and sentiment among merchants declined for a fifth month.
So let's see here: a consumption crippling sales tax increase in five days, soaring input prices which are cratering corporate profit margins just as Abe is really begging firms to hike wages, sliding confidence (which in Japan usually is a leading indicator to government change) as consumers can no longer even afford gfasoline, and oh, we almost forget, core deflation. But, hey, look over there, just like in Caracas, the Nikkei is exploding.
Where does one sign up to sing the praises of Abenomics again?