• YOMIURI EDITORIAL

Keep close eye on inflation risks as GDP shows positive growth

Optimism for the future of an economy that was picking up has waned amid the sixth wave of the novel coronavirus. To prevent the economy from slowing down again, the government needs to keep an eye on risks such as high commodity prices.

The preliminary quarterly estimate of real gross domestic product for October-December 2021 indicates an annualized 5.4% increase from the previous quarter, the first positive growth since April-June 2021.

Following the end of a state of emergency in September last year, private consumption, which accounts for more than half of GDP, rose a significant 2.7% from the previous quarter. Demand for previously sluggish services such as those related to eating out and travel accommodations has picked up, according to government data.

Sales of automobiles also recovered, reflecting an easing of supply constraints caused by a shortage of semiconductors and difficulties in procuring parts.

Capital investment by private enterprises was steady, increasing by 0.4% thanks to investment in semiconductor manufacturing equipment and digitization.

It is important to link the recovery of the two main pillars of domestic demand, private consumption and capital investment, to sustainable economic expansion.

The omicron variant has made its presence felt since January, making the outlook for consumption trends murky. It is clear from this time’s GDP data that the most effective economic stimulus is to curb the spread of infections.

The government needs to do its utmost, through measures such as accelerating booster shots of COVID-19 vaccines and expanding the testing system, to contain the spread of infections as soon as possible.

High commodity prices have emerged as another source of concern in consumer spending. The domestic corporate goods price index, a measure of transaction prices between companies, is at its highest levels in 36 years and 4 months; in January it rose 8.6% from a year earlier.

Soaring prices are extending to a wide range of goods, from raw materials and fuel to grains. Although the consumer price index, a measure of prices for familiar consumer goods and services, shows a small rate of increase, it has also been on an upward trend. Prices of daily necessities, such as food and gasoline, are particularly high.

If only prices rise while wage growth is sluggish, people’s purse strings will become even tighter.

Corporate performance has been robust, with non-financial corporations listed on the First Section of the Tokyo Stock Exchange expected to post record net profits for the fiscal year ending March 2022.

This year’s shunto spring labor wage offensive is in full swing. Companies with high earnings should raise wages as much as possible and contribute to shoring up consumption. Aggressive capital investment is also important.

The growing tension over Ukraine has raised fears that, in addition to financial market turmoil, prices of natural resources and grains will rise further. The Japanese government and the Bank of Japan should consider measures in cooperation with other major economies to stabilize the market to prepare for contingencies.

— The original Japanese article appeared in The Yomiuri Shimbun on Feb. 16, 2022.