If you are baffled by the deflation in Japan the mixed inflation/deflation in the United States and the inflation in most Third World countries.... you are paying attention.
I am asked by my readers for explanations of commercial issues. Somehow I have more credibility than the economists who pontificate on this... having left economics behind.
First Japan. Japan has faced deflation for 20 years now and a negligible growth rate. How this is possible is a good question. During this time the yen has rapidly appreciated making all imports much less expensive which helps the cost of living decline. This is also partly because of radical movement from the rural areas to big cities and associated drop in everything rural including rents.
Japanese deflation is actually hard to see when you are in Japan. Low spending and high savings are a partial explanation.
The United States has had a mixed inflation/deflation for 20 years. Overall we haven’t had inflation because of the vast amount of inexpensive imports from China and recently because of the decline in the euro. We have inflation in everything for which there is no overseas competition: education, health care, construction and government services.
We just had inflationary action by the Fed (QE2) with no inflationary U.S. effect.
Third World countries are almost in all cases facing inflation. This is a long-term trend but within the past two years many countries face very rapid inflation. This has led to a rise in food prices in many Arab countries and subsequent rebellion.
Globally there is a rapid rise in prices of commodities; platinum, corn, steel, coal etc.
Does all of this fit together?
Actually yes. Most Third World countries have little to export and depend entirely on imports with serious protectionist barriers. Because India, China and the United States are growing at very healthy rates the demand for commodities is driving up prices on the world market. This is of little significance to India and China because of their economic growth.
This increase in prices globally is having little effect on the United States because (a) the economy is so large that small input cost disruptions are not passed along to the market ( example: the 2007 increase in oil prices had little effect on retail non-gas prices) and (b) there has been so much productivity gain in the past 15 years that deflation is the order of the day.
Japan is immune to the global price rise. It is a vast exporter like China and India. It has an astounding savings rate which is inherently deflationary. It has a government that has been running an enormous deficit which is sopping up some of the Japanese savings. Overall, there is little reason for inflationary impact on Japan.
Summary: the global economy is booming which is creating inflation in Third World countries and having little or no impact on the four main exporting countries ( which includes Germany ) or the planetary elephant ... the United States.