The government on July 26 announced that the June consumer price index, not including perishable food, rose 0.4 percent from the same month a year before, representing the first increase since April 2012. The government must be aware that price rises are not based on expansion of demand. If food and energy items are excluded, the consumer price index in fact declined 0.2 percent.
The rise in the consumer index as announced by the government is mainly attributable to increases in heating and lighting expenses due to the higher costs of imported energy resources — an effect of the cheap yen brought about by the Bank of Japan’s unprecedented monetary easing. Prices for food items also have been rising recently.
The government and the BOJ hope that price rises will dissuade businesses from price-cut competition and, instead, move them to increase wages. The result would be economic recovery from expanded consumer spending. But the government announcement only reinforces the fear that the burden on households will increase with little prospect of wage increases for workers.
In June, the price of electricity rose 9.8 percent, city gas 4.7 percent and gasoline 6.4 percent. Power companies have raised electricity charges for five consecutive months.
It is expected that price rises for food items will go into full swing soon. Major food companies have already raised the shipping prices of cooking oil, bread and mayonnaise. The shipping prices of frozen food and milk are also set to rise.
Supermarkets are making efforts to absorb the increases in the shipping prices, but it is impossible for them to do this indefinitely and consumers will eventually have to shoulder the higher costs.
It is unclear whether the economy will begin a sustained recovery and workers’ wages will increase. Although the performance of major businesses is on a path of improvement, household incomes are not increasing. The Labor, Health and Welfare Ministry’s July 2 report shows that the average regular monthly wage in May was ¥241,691, a drop of 0.2 percent from the same month a year before and representing a decrease for the 12th straight month. This combined with recent price rises is increasing the burden on households. It’s very possible that consumers will tighten their purse strings in response and the economic recovery will suffer as a result.
The government must remember what happened in and after the summer of 2008, when costs of natural resources, including crude oil, shot up. At that time, consumer prices went up 2.4 percent from a year before. Because their incomes did not increase, workers tightened their purse strings and the economy failed to pick up. Prices began to fall in the spring of 2009 and that trend continued until recently.
The injection of a massive amount of money into the economy does not automatically lead to wage raises. The government must seriously consider ways to help increase household incomes. Businesses, for their part, must develop products that can compete with foreign makers without having to rely on a cheaper yen.
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