Price of wheat to rise for third time under Abe

Assault on yen pushes up food costs, inflation

Bloomberg

Wheat prices are poised to increase for the third time in a year, adding to inflation as Prime Minister Shinzo Abe’s economic stimulus weakens the yen and boosts costs.

Foreign wheat sold by the government to flour millers will probably rise about 5 percent in October from ¥54,990 a metric ton on average, according to the U.S. Wheat Associates.

The Agriculture, Forestry and Fisheries Ministry will decide on prices this month, based on purchasing costs in the six months through August, said Sunao Orihara, the ministry’s director of grain trade.

The increase will add to expenses for producers from noodle maker Nissin Foods Holdings Co. to Yamazaki Baking Co., which raised bread prices as much as 6 percent last month.

Higher food costs are helping Abe’s campaign to achieve a goal of 2 percent inflation for sustained growth.

Consumer prices in June had their biggest gain since 2008, signaling the economy may be starting to shake off 15 years of deflation. Wheat costs rose 10 percent in April and 3 percent in October.

“We expect another increase in yen-based wheat prices, despite a retreat in the international market, as Japan’s currency remains weak against the dollar,” Charlie Utsunomiya, director at the Tokyo office of U.S. Wheat Associates, said based on sales through July.

The yen has declined 15 percent against the dollar just this year and slid to 103.74 on May 22, the weakest level in more than four years.

Abe pushed the Bank of Japan to expand stimulus and double its inflation target to 2 percent to jolt the economy onto a growth path. In Japan, the weaker yen spurred a 39 percent advance in Japanese stocks this year and boosted earnings for exporters such as Toyota Motor Corp. and Sony Corp.

Masaaki Kadota, executive director of the Flour Millers Association, expects a 5 percent increase in wheat prices to add about ¥14 billion a year in industry costs.

Japan, Asia’s second-largest wheat buyer after Indonesia last year, depends on imports for almost 90 percent of the grain. The U.S. was the biggest shipper to Japan last fiscal year, representing 58 percent of the total, ministry data show. Canada was the second supplier with 1.2 million tons or 23 percent, followed by Australia with 925,000 tons.

The agriculture ministry controls overseas purchases and sales of wheat to stabilize supply, and reviews prices to domestic millers every six months.

Food makers have started to pass the increases onto consumers. Meiji Holdings Co. will raise milk prices by as much as 4 percent in October, citing higher feed costs and the yen’s decline. Mayonnaise maker Kewpie Corp. and bread producer First Baking Co. raised prices in July by as much as 9 percent and 7 percent.

Consumer prices excluding fresh food increased 0.4 percent in June from a year earlier as the BOJ’s unprecedented monetary stimulus weakened the yen and made imports more costly.

A growing number of Japanese anticipate inflation to gain traction, with a BOJ report on July 5 showing that 80.2 percent of people surveyed expect prices to rise in the next 12 months, the highest since September 2008.

  • http://www.sheldonthinks.com/ andrew Sheldon

    This is silly talk about inflation bereft of context. Deflation can actually be good. Real increases in wages caused by falling costs of products or interim goods is the nature of real wealth creation. Abe debasing the currency to create an illusion of wealth creation will prove to be illusionary unless he reforms the economy. Of course there are signs that he is working towards that..but inflation on its own is non-substantive, particularly when most price increases are destined to be absorbed by assets (because of low interest rates and currency debasement) rather than ‘cost of living’ items measured by CPI.

    • Klaus D. Orth

      Andrew, I fully agree with you.
      Those “Abenomics” aren’t working for the “normal people”. Everything is just getting more and more expensive. Grain, fuel, cooking oil, gas, electricity, and so on. These “-nomics” might work for those who already belong to the more wealthy side of society!

      • http://www.sheldonthinks.com/ andrew Sheldon

        The worst of it is yet to come. Most of it is being absorbed by asset inflation. That’s why we get QE and ultra-low interest rates, to keep asset prices buoyant. Otherwise collapse of credit or rise in costs. Something has to give, and its debasement of cash to recapitalise the economy, but really its not being felt by most yet unless they are trying to buy property in the cities where there is the demand. It might result in some lifestyle changes, living living on the edge of Tokyo. I note in my area, Hanno Saitama, that population growth seems bouyant. Cheaper living than NZ or Aust. Its really just drinking out that’s expensive. My costs are just $300 rates a year, Y300 if I get a bus, so I get a bike. Food is actually cheap because you learn to appreciate food more in Japan. Like eating a lot of appetiser. Best place to live. Very harmonious.

  • Max Erimo

    I’m not an economist, but with raising food prices and stagnant wages, where young people, especially new company employees wage is just possibly enought o live on, but not enough to allow savings for the future, is ABENOMICS really good for the country. The government is lucky that Japanese nationals are so passive or they could/should have a revolution on their hands.