Characteristics of Price Developments in Japan: Summary of the First Workshop on "Issues Surrounding Price Developments during the COVID-19 Pandemic"

On March 29, 2022, the first workshop on "Issues Surrounding Price Developments during the COVID-19 Pandemic," entitled "Characteristics of Price Developments in Japan," was held at the Bank of Japan's Head Office. Taking differences in consumer price developments between Japan, the United States, and Europe in the wake of the COVID-19 pandemic as a starting point, a lively discussion was held on the characteristics of price developments in Japan, involving experts and scholars in economics and empirical analysis. Session 1 focused on the characteristics of Japan's lower consumer price inflation in the wake of the COVID-19 pandemic compared to the US and Europe based on the results of an analysis using the price change distribution and core inflation indicators. In addition, based on empirical results showing that in Japan the interaction between wages and prices is weak, discussions were held on the link between the two, which is regarded as important in terms of the sustainability of inflation. In Session 2, service prices, which are one of the reasons for differences in consumer price developments in Japan, the US, and Europe, were highlighted and issues related to the measurement of service prices, especially rent, were discussed. It was pointed out that which measurement approach is used may have a sizable impact on the measured difference in the rate of inflation between Japan and other countries in the wake of the COVID-19 pandemic. Session 3 consisted of a panel discussion focusing on three main issues: (1) the reason for the differences in consumer price developments between Japan, the US, and Europe; (2) the outlook for future prices; and (3) the challenges for monetary policy based on the current situation of and outlook for prices. With regard to (1), panelists generally agreed that major reasons for the acceleration in inflation in the US include the sharp recovery in demand and the decline in the labor force participation rate; in contrast, no similar developments were seen in Japan, so that consumer price inflation in Japan has remained weak compared to the US. Regarding (2), it was pointed out that on the one hand Japan faced the risk of prices falling again due to chronic deflationary factors that have been in place since before the pandemic and the decline in demand caused by the prolonged impact of COVID-19; on the other hand, there is also the risk of a rise in inflation due to the cost-push shock triggered by the sharp rise in commodity prices. It was then pointed out that the key factor in determining which risk is more likely to materialize is future developments in wages. Regarding (3), panelists shared the view that it is desirable to continue monetary easing in response to weak demand, while it is desirable to respond to price hikes in some items, particularly energy, by measures other than monetary policy.