Inflation versus growth

 30 years OK I lived in Japan for a year.  At the time I found it a very expensive place.  Roughly 3x as expensive as the UK.  My crude measure of the cost of living was a carrier bag of food shopping cost me £40 at the time whereas the UK was between £10 and £15 for a carrier bag of food.

30 years on,  I returned to Japan for a holiday. I was aware prices hadnt really changed much in 30 years but I was surprised how cheap it was compared to the UK - at least to eat out.  I would say prices were about 30% of London prices.  Sure housing is still expensive there - maybe 20% cheaper than London but certainly as a tourist it was cheap.  Pretty easy to get lunch in a restaurant/bar with a beer for about £6.  The most expensive meal in a moderately high end restaurant for 2 people, with drinks, was £75.  A cheap lunch in the UK for 2 people without alcohol can getting close to £35 nowadays.

So I'm aware that Japan has had pretty much zero inflation over the 30 year period. My thoughts were the currency markets should come up with some kind of economic parity but it's clear that is not the case.

The table below shows the data:

So over the period 1995 - 2022 Japan had cumulative inflation of 6.6% whilst the UK had 63.1% inflation of prices. So maybe Japan's "weak" economy didnt grow over the period?

Japans economy grew 21.4% over the period whilst the UK's economy grew 56.5%. 

However that's not the true picture.  Inflation can look like growth. If the price of something doubles then that impacts GDP (growth) so we need to adjust the growth numbers to subtract inflation since inflation is not more economic output. 

When we subtract inflation it's different picture.  Japan has overall growth was 14.8% whilst the UK has contracted (got poorer) by -6.6%

My crude benchmark for the cost of bag of food shopping was reached in the UK around 2020.

So 30 years ago the Japanese could be heard saying how cheap London was now they find it expensive. 

Now if the currency markets adjusted things correctly Japan should be more expensive than it was 30 years ago but it clearly isnt.  That leads me to think that the currency markets value headline growth over real growth. But that doesnt fully explain things.  If it 3x more expensive 30 years ago and is now roughly 1/3rd of UK prices then growth mapping should 9X (ie 900%) but it's nothing like.

The markets have got a downer on Japan and are devaluing the currency. 

Anyway it's clear inflation is an evil but for me it gave me a cheap holiday !