Engel’s law — named after the 19th century German statistician Ernst Engel — states that as people’s income rises, they spend a declining proportion of their income on food even if the actual amount they spend on food increases. Thus Engel’s coefficient — the proportion of money spent on food in household expenses — is seen as an indicator of a nation’s standard of living. The figure falls as a country’s economic growth makes its people wealthier, and tends to rise when they get poorer. It is also said that today the correlation is no longer that simple as people’s consumption patterns and lifestyles grow more diverse.
The Engel’s coefficient for Japan, which topped 60 percent during the food shortage in the chaos right after World War II, steadily declined during the postwar reconstruction and subsequent rapid economic growth — until the figure began picking up again over the past decade. The figure reached 25 percent last year — compared with a low of 22.9 percent in 2005 — and continues to rise. In June, when an average household of two or more people spent a total of ¥261,452, a 2.2 percent decline in real terms from a year ago, the ¥69,945 that went for food (including dining out) accounted for 26.8 percent of the total. The figure is reportedly rising faster among lower-income people.
This may be another indication of how households have yet to reap the benefits of the Abe administration’s economic policies, which pushed up corporate profits and share prices while people’s net income fell as prices rose faster than wage hikes. It may also be attributable to other longer-term factors, including changing family lifestyles.
Overall consumer spending remains weak as the economy’s growth continues to be uneven and fragile. It’s worth looking into why people are spending more of their household income on food and what it means for their daily lives. The administration, which has just unveiled a ¥28 trillion stimulus package, should reconsider whether it’s doing enough to spur personal consumption — the key to a sustained economic recovery.
There are a few obvious factors that explain why the rise in Engel’s coefficient has been picking up speed since Prime Minister Shinzo Abe took the reins of government— from 23.5 percent in 2012 to 23.6 percent in 2013, 24 percent in 2014 and 25 percent in 2015. One is an increase in food prices since 2013 — driven by the yen’s depreciation under Abe’s watch, which pushed up the cost of imports and food ingredients. The coefficient will go up if food prices rise while consumers cut back on other expenses to compensate for a net decline in wages — which continued for four consecutive years till 2015. The first hike in the consumption tax in 17 years, from 5 percent to 8 percent, in April 2014 also contributed to the rising cost of living, including food expenses.
There are limits to reducing food expenses when people try to cut spending, so they instead refrain from purchases of consumer durables such as clothing and furniture or spend less on entertainment — a pattern that is contributing heavily to the weakness in consumer spending.
Other factors pushing up food expenses relate more to people’s changing lifestyles and demographic trends. A decline in the size of households and a rise in the number of families in which both parents work have led people to eat out and purchase ready-made meals more often — practices that are typically more expensive than cooking at home. This trend is also spreading among elderly households. The per-person expense of cooking at home also tends to be higher for smaller households than larger ones.
The growing portion of food in household expenses may also come from people’s changing values in personal spending. According to a 2015 survey by Nomura Research Institute that examined the changes in life values and spending behavior of 10,000 people aged 15 to 79, food was among the items on which rising numbers of respondents said they want to actively spend their money — along with dining out and communicating and interacting with other people. It also cited dining out, eating expensive food and trying out well-known restaurants and eateries as increasingly popular leisure activities. Unlike the purchase of food as a daily necessity, such spending behavior may defy explanations by Engel’s law.
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