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Economy likely to suffer triple hit from simultaneous price, tax hikes

Kyodo

The economy is likely to take a hit from planned hikes in commodity and services prices, as well as pension system-related taxes from Tuesday as a threat from the rise in the consumption tax looms, economists say.

“There is a risk that sharp price increases and an economic deterioration will unfold simultaneously as consumers will become more inclined to limit expenditure,” Hideo Kumano, chief economist at the Dai-ichi Life Research Institute, a research arm of Dai-ichi Life Insurance Co., said Sunday.

Multiple food-makers and some major companies in the services sector have announced plans to raise prices from Tuesday to pass on the impact of the weaker yen on import prices as well as higher materials prices.

The impact of the moves on personal consumption is likely to be aggravated by the start on Oct. 1 of an average 1 percent cut in payments by the government-run pension system for employees as well as a hike in pension premiums, they said.

Prime Minister Shinzo Abe is expected to announce on Tuesday his decision regarding whether to implement an increase in the consumption tax rate from next April.

The government earlier said it will conduct an average 4.1 percent increase in the prices at which it sells imported wheat to millers and other corporate wheat consumers.

“There is no alternative but to transfer the impact of higher government-set prices to our product prices,” an official at a major miller said. Makers of other wheat-based foods like bread and noodles are likely to charge more for their products.

Milk producers like Meiji Co. say they plan to raise prices by 1 to 4 percent as higher import prices for compound livestock feed have led dairy farmers to raise wholesale prices for milk.

An official at a milk producer said the scope of wholesale price hikes “has been more than we could absorb by limiting our profitability.”

Major sake-makers like Takara Shuzo Co. and Hakutsuru Sake Brewing Co. said they will raise sake prices by 2 to 7 percent.

“We are facing a harsh situation as the price of rice from which we brew sake has risen precipitously,” a source said.

Nisshin Oilio Group Ltd. says it will increase sesame seed oil prices by more than 10 percent.

Three major nonlife insurance companies say they will raise premiums by 1 to 2 percent, while major gas utilities have said they will conduct monthly price hikes of ¥6 to ¥11 per household.

  • anita railing

    Austerity by any other name would taste as bitter.

    • japanish

      It’s not austerity. It’s inflation, brought on in no small part by Abenomics massive devaluation of the Yen. Coupled with the erosion of employment rights and wages, it’s designed to force women into the workforce and the elderly to spend their savings, while enriching business owners (they can pay derisory wages,fire people at will, make them work overtime etc)
      All those savings you have carefully squirrelled away? You’re going to have start spending it just for day to day living.
      And it’s just going to get worse, so if you’re living in Japan, get used to it!