Commodity prices in Japan short at the highest rate in 32 years as a result of a sales-tax increase and higher utility charges. This contributed to the biggest fall in household spending since the earthquake in March 2011.
The yen strengthened 0.3 percent to 101.44 as of 1:51 p.m. Friday in Tokyo. It can be remembered that the currency’s 18 percent decline against the dollar in 2013 increased the prices of imported energy and other goods.
The statistics bureau in Tokyo said today the prices, with the exception of fresh food, rose 3.4 in May from a year earlier. And the household expenditure slipped by 8 percent.
Overall inflation stood at 3.7 percent, and the gauge excluding perishables and energy was at 2.2 percent. The price of gasoline and electricity charges increased by 9.6 and 11.4 percent respectively, while the price of fresh seafood jumped by 14.3 percent.
Governor Haruhiko Kuroda said this week that the prices will probably go down slightly in the coming months before rising again towards the 2 percent targeted by Japan; a target that he said strips out the impact of tax rise in April. Prime Minister Shinzo Abe therefore has an uphill task of convincing companies to raise wages and to dig into record cash stockpiles in order to help contain the inflation.
Taro Saito, the director of economic research at NLI Research Institute in Tokyo said that the bigger than forecast drop in spending is an indication that households are starting to struggle with faster inflation combined with the sales-tax hike. “It’s hard to imagine households are happy with Abenomics” he added.
According to BOJ estimates, the sales-tax increase would add 2 percent points to the inflation rate in May. The BOJ is not planning to add any stimulus this year. The bank has made it clear it expects a slowdown in prices, said Takuji Aida, a Tokyo chief economist at Societe Generale SA.
Prime Minister Shinzo Abe, in an interview this week, declared the end of the deflation that he said had wiped out growth in Japan over the past 15 years. “Through bold monetary policy, flexible fiscal policy and the growth strategy we have reached a stage where there is no deflation,” he said.
According to the trade ministry wages fell for a 23rd month in April – with the exception of bonuses and overtime payments, and the prices of regular gasoline peaked since September 2008 as of June 23.
From May, the prices of electricity and gas were raised by all the 14 major companies to the highest level since the current pricing system started in May 2009. Tokyo Electric Power Co. increased its prices for households by 5.3 percent. And Fast Retailing Co., an operator of Uniqlo clothing chain, said it will raise the price of its goods by 5 percent this month.
“Uncertainties remain for consumer spending as it’s hard to imagine households will stay willing to spend when their real income is clearly dropping,” said the principal economist at the Japan Center for Economic Research, Nobuyasu Atago.
The country’s labor market is also tightening with jobless rate falling to 3.5 percent and the number of job openings per applicant rising to 1.09, the highest ratio since 1992.