RIEB Discussion Paper Series No.2025-22

Title

The Role of Cyclical Inflation: Evidence from Japan

Abstract

Monitoring inflation is an important aspect of policymaking, but understanding the factors that drive inflation remains challenging. In this paper, we construct a cyclically sensitive inflation (CSI) index for Japan and examine its usefulness from several perspectives. Specifically, we investigate (1) the dynamic relationship from financial markets and the real economy to cyclical inflation, (2) how well cyclical inflation can predict future inflation trends, and (3) the effectiveness of the CSI as a real-time indicator of economic slack. Our empirical results show that the CSI can complement headline and core inflation measures and, when used together, help distinguish whether price changes are due to temporary factors or persistent pressures associated with the business cycle.

Keywords

Cyclical inflation; Business cycle; Financial market; Inflation forecast; Japanese economy

JEL Classification

C32, E31, E32, E52, E58

Inquiries

Takuya SAKAGUCHI
Graduate School of Economics, Kobe University

Masahiko SHIBAMOTO
Research Institute for Economics and Business Administration (RIEB)
Center for Computational Social Science (CCSS)
Kobe University
Rokkodai-cho, Nada-ku, Kobe
657-8501 Japan
Phone: +81-78-803-7036
FAX: +81-78-803-7059