Inflation is dominating headlines around the world...except in Japan. While most OECD countries are experiencing the biggest surge in inflation in decades, Japan continues to struggle with deflation. In the U.S. the Consumer Price Index ("CPI") gained 6.2% y-o-y in Oct, the highest increase in over 30 years. The U.S., U.K. and other major OECD economies have now averaged a 2.5% y-o-y increase in CPI over the past twelve months; Japan just -0.5%.
Source: OECD.Stat, Mantabye
Inflation in moderation is good for the economy, but too much or too little it hurts economic growth. Japan has been fighting deflation ever since its economic bubble burst in the 1990s. Over that time Japan has attacked the problem with innovative policies, including "using negative interest rates to encourage spending and injecting money into the economy through large-scale asset purchases, a policy known as quantitative easing." But nothing has really worked. Economists believe a combination of self-fulfilling expectations of lower prices, Japan’s aging population, globalization, and technology have worked to worked to keep demand and costs down. It's part of the secular stagnation thesis, popular among prominent economists. The big worry, even a few quarters ago, was that the U.S. and Europe and would also struggle with the same forces. And they may yet do so, but for right now one of these things is not like the others.
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