PPI vs CPI Deflation Japan

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  • #17665

    Hi Dr. Herbener:
    Another question on Japan and ABCT.
    After the bust, prices of producer goods have fallen, which is consistent with ABCT.
    However, prices of consumer goods have increased until around 2000 when they started to fall.
    1. Why do prices of consumer goods fall after the bust? Because of fall in demand?
    2. Is there a link between the prices of producer goods and prices of consumer goods? If yes, how? and why did consumer goods price deflation started later than producer goods price deflation?


    Overall prices fall because of a change in the money relation. The money stock fall relative to money demand or money demand increases relative to the money stock. The former is more common during a bust.

    The link between prices of consumer goods and producer goods is the rate of interest. Typically, then the price spread falls during the boom and then moves up in the crisis. During the bust, it can move either up or down depending on how time preferences change.

    Here is the Bank of Japan page on prices:


    Here is the BOJ statistics on corporate prices from 1980 to the present:


    The website will make other graphs by selecting a series, like “wholesale prices.”

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