Inflation is not about to return to Japan just yet. According to the Bank of Japan's latest "Outlook for Economic Activity and Prices" released at the end of last month, the BOJ Policy Board members' median forecast for consumer prices in fiscal year 2005 is a 0.1 percent decline over FY 2004. Their outlook for FY2006 is a miniscule increase of 0.3 percent. It may not be the cork-screwing down of prices that we grew accustomed to in recent years, but neither is it inflation as we have known it in the past.
In an inflationary world, everything moves in fast-forward mode. It is as though you are running up an upward-moving escalator. Prices rise, profits rise, incomes grow, spending increases, people grow richer, or so they think, they spend even more, their demand pulls prices up even further. . . . and so we keep racing ever more faster up the escalator, until we get to a point where there is no longer anywhere else to go but down.
And the way down tends to be not so much an escalator any more, but a very steep and very smooth slope with nothing to hold onto. The whole experience can be quite scary. But at least the process is relatively straightforward.
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