Why Japan's CPI remains low while other economies grapple with inflation

Food and energy rises

As the global economy takes steps to recover from the pandemic, prices have steadily risen around the world, with US CPI hitting a 31-year high of 6.2% year on year in October. Japan, however, remains an exception among the major economies. The country's headline CPI did tick up in October, but at a very modest pace of 0.1% year on year from the previous year, showing that inflation is yet to gain strong traction in a country long stuck in deflation.

In a country heavily reliant on imported natural resources, Japanese firms have so far mostly absorbed the rise in the costs of raw materials. In general, Japanese consumers get very upset at price hikes and tend to reduce consumption of such products in protest, at least for a while. For example, it was very easy to get a taxi for many weeks when taxi fares were hiked many years ago. Therefore, companies hesitate to raise prices and inflation gets muted. That said, many companies, especially in the food industry ranging from fast food chains to supermarkets, are raising prices now, so...