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Upside of Inequality Oxford Unintended Consequences

AI Summary. Japan's return to headline inflation of 1.5%, modest by global and historical standards, feels to many households like a severe cost-of-living crisis because real wage gains had until recently failed to keep pace with more expensive imports. Japanese households spent 30.75% of income on food, a 25-year peak and among the highest in the developed world.

Leo Lewis Financial Times
Date Posted:

Reflation in Japan has left real wages below their 2020 level, though headline inflation is only running at a modest 1.5%.

Why does modest inflation feel severe to Japanese households?

Core argument: Japan's Engel coefficient, the share of household income spent on food, hit a 25-year peak of 30.75% in December, one of the highest levels in the developed world.

[Japan’s] return to what is, in global and historical terms, modest headline inflation of 1.5% feels, for many households, like a severe cost of living crisis, as real wage increases have failed, until recently, to match the costs of more expensive imports. Japan’s Engel coefficient, a “pain index” that measures the proportion of household income spent on food, stood at a 25-year peak of 30.75% in December — one of the highest in the developed world.

Takeaways by Macro Roundup® AI

  1. Japan's Engel coefficient, the share of household income spent on food, hit a 25-year peak of 30.75% in December, one of the highest levels in the developed world.
  2. Japan's headline inflation of 1.5%, modest in global and historical terms, registers for many Japanese households as a severe cost of living crisis.
  3. Real wage increases in Japan failed, until recently, to keep pace with the cost of more expensive imports.

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