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http://www.bloomberg.com/news/2013-08-29/japan-prices-rise-at-fastest-pace-since-2008-in-abenomics-boost.html

Why, oh why is this good news for the Japanese economy in general, unless wages are rising too.

Deflation is terrible for an economy, much worse than inflation (except hyper-inflation). And Japan has been mired in deflation for two decades now. If prices are falling, no one will spend their money, because it will be worth more if they hang onto it and spend it later. What you want is for people to go out and spend their money now because it will be worth less if they wait.

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Deflation is terrible for an economy, much worse than inflation (except hyper-inflation). And Japan has been mired in deflation for two decades now. If prices are falling, no one will spend their money, because it will be worth more if they hang onto it and spend it later. What you want is for people to go out and spend their money now because it will be worth less if they wait.

Yes it's terrible people having more purchasing power, far better to make their wages worthless.

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If prices are falling, no one will spend their money, because it will be worth more if they hang onto it and spend it later.

Have you ever bought a computer or a mobile phone? Their prices have been falling steadily for decades, but people keep going out and buying them. According to your logic they should all be sitting on their cash waiting to buy a supercomputer for pennies some time in the 22nd century.

Falling prices are no different from receiving real interest on savings. Yes, it's nice to save money for a rainy day and watch it grow in value, but in real life people balance potential future gains with having quality of life today.

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I don't know about you but I'm also waiting for food prices to come down before I eat. Just... a... little... longer...

More likely it scares governments because their debts increase in real terms while income decreases.

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Have you ever bought a computer or a mobile phone? Their prices have been falling steadily for decades, but people keep going out and buying them. According to your logic they should all be sitting on their cash waiting to buy a supercomputer for pennies some time in the 22nd century.

Falling prices are no different from receiving real interest on savings. Yes, it's nice to save money for a rainy day and watch it grow in value, but in real life people balance potential future gains with having quality of life today.

This^^^

The idea is that a persons thought process runs thus 'I really want that car/play station/tv' but prices are falling so ill wait'. I bet not one tv car or ps has been sold in Japan for twenty years. Ahem......

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Well its terrible for the bankers and rentiers as their ability to steal wealth from normal working people is greatly curtailed.

How so?

I've always thought the 'deflation is evil because people hoard cash' argument is really weak. I think deflation is deeply feared by people and governments steeped in debt. Deflation means the debt gets bigger relative to your income. This makes a big impact in not very many years. Savers like deflation. Debtors like inflation. Simples.

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How so?

I've always thought the 'deflation is evil because people hoard cash' argument is really weak. I think deflation is deeply feared by people and governments steeped in debt. Deflation means the debt gets bigger relative to your income. This makes a big impact in not very many years. Savers like deflation. Debtors like inflation. Simples.

Only if their wages are rising, otherwise the debt is just harder to pay because essentials are more expensive?

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This^^^

The idea is that a persons thought process runs thus 'I really want that car/play station/tv' but prices are falling so ill wait'. I bet not one tv car or ps has been sold in Japan for twenty years. Ahem......

Yes but guess what? Cars. TV's game consoles (stuff that deflates) all get better/. Stuff that inflates like crap housing get worse and smaller. Fancy that.

Someone was telling me, the other day that loaves of bread in Morrisons have got smaller, down from 750g to 700g (or 800 to 750 not sure which). I bet that isn't in Carneys inflation figures.

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Yes it's terrible people having more purchasing power, far better to make their wages worthless.

I'd be very interested to know what the poster does for a living who said that deflation is terrible etc

The fact is living standards rise in deflation. TPTB are hurt but not the people. So what if they don't spend - though they do. They can import more cheaply due to higher currency. Thus they can also export more cheaply. Just like Japan has done for 20 years.

And Germany for decades of a rising DM.

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Yes but guess what? Cars. TV's game consoles (stuff that deflates) all get better/. Stuff that inflates like crap housing get worse and smaller. Fancy that.

Someone was telling me, the other day that loaves of bread in Morrisons have got smaller, down from 750g to 700g (or 800 to 750 not sure which). I bet that isn't in Carneys inflation figures.

Interesting slide I found the other day of inflation in the EU-27 since 2007. The UK charging ahead just as Mervyn predicted... not.

slide-14-638.jpg

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Interesting slide I found the other day of inflation in the EU-27 since 2007. The UK charging ahead just as Mervyn predicted... not.

slide-14-638.jpg

Haha, well retail prices here were high anyway so rather than put them up with inflation the UK is merly catching up to Irelands once rip-off prices.

To give you an hour of fun look at tesco.ie and tesco.co.uk and compare prices - you will find lots of differences.

I just fear for the return of my savings rather than the return on, but equally in the UK I feared about the devaluation of my savings. I feel safer as the Euro area is larger, hence more powerful than the UK.You only have to look at the Syria shambles to see that the UK has no power any more.

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well the evidence of what happens in a deflationary economy is... japan.

20 years of stagnation with little growth and rising debts is nothing to brag about.

when your debts get bigger and bigger in a deflationary environment people are less inclined to want to invest.

its more a psychological issue.

saying people still buy computers as they they get cheaper doesnt negate the fact that if someone if borrowing money to setup a business or if an established business wants to borrow money to invest, deflation is definitely an issue in the decision making process.

its doesnt need to put everyone off, but if it puts say 5% more people off every year, this will impact the economy.

also in a similar way to houses it puts power firmly in the control of those holding all the money. people sit on houses, do nothing and watch it go up in value. a similar thing happens with money.

Edited by mfp123

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well the evidence of what happens in a deflationary economy is... japan.

20 years of stagnation with little growth and rising debts is nothing to brag about.

when your debts get bigger and bigger in a deflationary environment people are less inclined to want to invest.

its more a psychological issue.

saying people still buy computers as they they get cheaper doesnt negate the fact that if someone if borrowing money to setup a business or if an established business wants to borrow money to invest, deflation is definitely an issue in the decision making process.

its doesnt need to put everyone off, but if it puts say 5% more people off every year, this will impact the economy.

also in a similar way to houses it puts power firmly in the control of those holding all the money. people sit on houses, do nothing and watch it go up in value. a similar thing happens with money.

Good post, but don't expect it to be appreciated on a Japanese thread. The hatred of inflation is so great that deflation is considered the lesser of two evils. Perhaps even a positive, near equal to a night in the sack with Cameron Diaz.

The reality of a deflationary spiral is not understood. They have never seen one at first hand of course.

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Good post, but don't expect it to be appreciated on a Japanese thread. The hatred of inflation is so great that deflation is considered the lesser of two evils. Perhaps even a positive, near equal to a night in the sack with Cameron Diaz.

The reality of a deflationary spiral is not understood. They have never seen one at first hand of course.

Maybe the posters here are just cynical about the deflation bogeyman that's constantly trotted out as our worst nightmare, with Japan as the poster child.

I created the following charts in just a few minutes so they're not good quality, but they show the all-items index and selected sub-indices of the Japanese CPI. The data can be accessed here.

The figure in brackets in the heading is the percentage of the total CPI basket accounted for by each category. The categories I show account for roughly 84% of Japan's CPI.

Since you've lived through this 'deflationary spiral' (or at least that's what you imply in your comment above) I'd like to ask you the following questions:

1) Have I made a mistake with the numbers?

2) If the answer to 1) is 'no', from everyday experience do you think the official stats are wrong?

3) If the answer to 2) is 'no' then why, if you lived in an environment like this, would you assume prices are going to fall next year? Why wouldn't you assume that prices will roughly remain the same?

4) In what way will the people of Japan be better off if all those charts show a rising trend?

These are genuine questions I can assure you, and if FaFa's reading this I hope he will chip in as well. I want to understand why it's so bad to live in an economy where the price data look like this.

JCPIa.gif

JCPIb.gif

JCPIc.gif

JCPId.gif

JCPIh.gif

(continued next post)

Edit: added image

Edited by FreeTrader

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price stability is fine if thats all you want.

the problem is that the rest of the world is growing faster than you.

from 1991-99 real growth averaged 0.7%,

from 2000-07 is was 1.5%

and from 2008-12 it was -0.2%

its all relative. if the other developed nations had zero growth those figures would look great. but the US, Europe, canada, australia have been growing at a much greater rate.

in that time for example the US grew over 3% per year up to 2007.

you could argue its a natural consequence of de-leveraging an asset bubble in an economy. europe is going through the same thing.

but if japan goes through another 10 years averaging 1-1.5% growth that looks fine if the US and europe get bogged down with no growth. its not fine if everyone else gets back to 2-3% growth and youre still moving at a snails pace.

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well the evidence of what happens in a deflationary economy is... japan.

Japan isn't screwed because of price deflation. It's screwed because of its government and demographics.

Are you really arguing that we'd be better off if computers still cost millions of pounds?

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Some interesting views.

Does this mean with our 2.7% inflation we have got it right?.... according to the media we are starting to recover.

Prices are rising, wages flat, government borrowing still rising, I just don't get it.

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Japan isn't screwed because of price deflation. It's screwed because of its government and demographics.

Are you really arguing that we'd be better off if computers still cost millions of pounds?

Japan is screwed by debt. The country's debt-to-GDP is threatening to run off to infinity. Just like the UK the economy has to deleverage. This can be accomplished in only two ways: asset price deflation or current price inflation. For the last 20 yrs asset price deflation has ruled but the Japanese govt has been forced to borrow and spend on several occassions when self-reinforcing depressions looked likely to take hold. Consumer prices, on the other hand, have barely moved as FT's charts illustrate. As a consequence Japan's debt obligations have ballooned to the point where they threaten to overwhelm the capacity of the working age population to service them (demographics is an issue). Which is where so-called Abenomics comes in. QE is being used to trash the yen, force up current prices and devalue savings. The hope is that this threat will terrify Japanese pensioners into consuming their accumulated earnings sooner rather than later.

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