As the rise in inflation and the subsequent cost of living crisis become ever bigger news in the West we have seen that some countries in the East and in particular the Orient have so far avoided much of it. For example we have seen confirmation this morning that inflation in Germany was 8.5% on the Euro area measure and would have been even higher without this.
Two measures in the relief package have had a slightly dampening effect on overall inflation since June 2022: the 9-euro ticket and the fuel discount. In July 2022, the EEG surcharge was abolished,” says Dr. Georg Thiel, President of the Federal Statistical Office.
The EEG surcharge is a Green Levy.
In July 2022, the EEG surcharge, which had been 3.7 cents per kilowatt hour of electricity since the beginning of the year, was also abolished.
We will get the latest US inflation numbers this afternoon but in the West we have inflation in many places of the order of 9%.
China
Now let me hand you over to the Chinese Bureau of Statistics
In July 2022 , the national consumer price rose by 2.7% year-on-year . Among them, the city rose by 2.6% , and the rural area rose by 3.0% ; food prices rose by 6.3% , non-food prices rose by 1.9% ; consumer prices rose by 4.0% , service prices rose by 0.7% . On average from January to July , the national consumer price rose by 1.8% over the same period of the previous year .
As you can see the numbers are far lower than in the West. Let is look at the area which has the highest level in the breakdown above.
In July , the prices of food, tobacco and alcohol rose by 4.7% year-on-year , affecting the CPI (Consumer Price Index) by about 1.28 percentage points.
Thus on an initial basis we see that tobacco and alcohol prices have fallen in the past year. That seems extraordinary but let us stay with the food issue.
Among food, the price of fresh fruit rose by 16.9% , affecting the CPI rise by about 0.30 percentage points; the price of fresh vegetables rose by 12.9% , affecting the CPI rise by about 0.24 percentage points; the price of livestock and meat rose by 8.4% , affecting the CPI rise by about 0.27 percentage points, of which pork prices rose by about 0.27 percentage points. The price of eggs rose by 20.2% , affecting the CPI by about 0.27 percentage points; the price of eggs increased by 5.9% , affecting the CPI by about 0.04 percentage points; the price of grain increased by 3.4% , affecting the CPI by about 0.06 percentage points; the price of aquatic products fell by 2.9% , affecting the CPIdown about 0.06 percentage points.
The rise in the price of eggs gives perhaps a reminder of the days of bird flu. As to the price of fish falling that is rather different to the West. We learn more as we note the German breakdown.
Price increases were observed for all food groups in July 2022. Edible fats and oils (+44.2%) as well as dairy products and eggs (+24.2%) became significantly more expensive. Double-digit inflation rates were also determined for other food groups, including meat and meat products (+18.3%).
It turns out that eggs are relatively similar whereas the meat category was very different with Germany more than double or around 10% higher.
If we switch to transport we similar numbers but only after considerable intervention by the German government.
China: Among them, the prices of transportation and communication, education, culture and entertainment increased by 6.1%
Germany: inflation in the transport sector has therefore weakened (+5.4%). Inflation was +8.3% in June and +16.3% in May.
If we switch ti the services sector which as a generic has seen much lower inflation rates than for goods we see quite a difference.
China: service prices rose by 0.7%
Germany: In July 2022, the prices for services as a whole were 2.0% higher than in the same month of the previous year.
Smaller numbers of course but one is nearly treble the other.
If we switch to the month on month numbers we see again higher ones from Germany (0.9% compared to 0.5% ). There was something which stood out in the Chinese numbers.
non-food prices fell 0.1%
The monthly inflation was food with much of it being the staple we have looked at many times before.
of which the price of pork increased by 25.6% , affecting the CPI increase by about 0.32 percentage points;
But returning to the way that non-food prices fell the thoughts of Michael Pettis are interesting.
Non-food prices actually declined in July, more evidence of the very weak domestic demand from which China suffers. In the rest of the world prices are rising partly because of supply disruptions and partly because of demand-side stimulus……..In China, however, almost all stimulus is supply-side stimulus, even though China’s main problem is on the demand side, and as a result rising global prices are not reflected in Chinese prices.
Japan
The idea of lower inflation being a lack of demand issue would on its own make me think of Japan. This is because the “lost decade” period which began with the bust in the early 1990s has had at its core weal domestic demand or as it has usually been expressed consumption. This led the Bank of Japan to think this.
The potential growth rate seems to have been in
the range of 0.0-0.5 percent recently.
There are various factors in this but one of them is clearly demographics with the Japanese population not only ageing but also shrinking. This morning we were told this.
TOKYO :Japanese wholesale prices rose 8.6 per cent in July from a year earlier, data showed on Wednesday, slowing from the previous month’s pace in a sign inflationary pressure from higher fuel and raw material costs was easing………The increase in the corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, marked the 17th straight month of gains but slowed from a revised 9.4 per cent rise in June, the data showed. ( Channel News Asia )
Again this is very different to what we are experiencing in the West where rates have gone as high as the 43.6% seen in Spain.
We can bring in another theme as Japan has seen costs rise because of the fall in the Yen.
The yen-based import price index spiked 48.0 per cent in July, bigger than a revised 47.6 per cent gain in June, a sign the yen’s decline was playing a major role in pushing up inflation.
Yet we end up with a consumer inflation rate of 2.4%
Comment
We have found one contributory factor to explain the inflation gap between the West and both China and Japan which is low domestic demand. However one of the reasons I have made a comparison with Germany today is that it too is an exporting nation and a lack of domestic demand there was a factor in some explanations of the credit crunch and indeed the Euro area crisis. So there is more to this particular saga I think.
There is another factor in Japan in that they indulge in their own version of shrinkflation where goods specifications and ingredients are changed to keep prices down and inflation low. The inflation numbers should allow for that but I do not believe that they do.