Deflation? What Deflation? Statistical Origins of Japan’s Declining Price Levels
Published: June 2015
Although Japan’s CPI is often criticized for potential upward bias, it deals with improvements in the quality of individual goods in ways that make the statistical inflation rate much lower than actual price changes. Moreover, the quantitative importance of this effect has risen progressively since the early 2000s due to increased weights of technology-intensive electronic products and changes in the method of adjusting their prices for quality improvement. Once this artificial effect is taken into account, it becomes questionable that Japan’s recent deflation has been so serious as to justify the adventurous monetary policy currently implemented by its central bank.