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Inflation, a phenomenon that Japan is no longer used to

Inflation, a phenomenon that Japan is no longer used to

Everything seems to indicate that inflation will rise sharply in Japan, driven by the explosion in energy prices. But for companies in the country, marked by a deflationary mentality, raising prices is not an easy task.

The cost of numerous items of daily life has increased in recent months, a fact echoed by the local media, which published announcements in this regard issued by the agri-food giant Meijithe supermarket chain Lawson o the group of cosmetics and cleaning products kaoamong others.

The future rise in the price of “umaibo”some puffed corn sticks very popular among Japanese children, caused quite a stir at the end of January, since the price of that candy had remained stable since it went on sale… in 1979.

Since the 1990s, the Japanese economy has been globally stagnant and alternates periods of falling prices (deflation) with, at most, some phases of timid inflation.

Those “lost decades”as economists nicknamed them, “truly forged a deflationary attitude” in which consumers “expect neither wages nor prices to rise”remember Shigeto Nagaifrom oxford economics.

In addition, companies have “lost their pricing power: they fear losing market share if they start selling more expensive”adds the economist.

Cut benefits and “reduflation”

Many local companies prefer to absorb their additional costs rather than offload them on top of their selling prices.

And the smaller they are and the closer their ties to customers, the more difficult it is for them to take the plunge.

“For now, I’m putting up with rising costs”Explain Satoshi Okubowho runs a family restaurant in tokyo specializing in udon noodles (based on soft wheat flour).

“We have had this business for 70 years, I cannot simply make those costs fall on our clients, to whom we feel very close”he argues, even if that means a reduction in his profits.

In order not to cut their profitability too much, many Japanese food brands resort to “reduflation”: do not touch the price of a product but slightly reduce its quantity.

A practice that irritates some consumers, such as Masayuki Iwasa, 45, who has collected such cases since the beginning of 2020 on his website, called “Neage” (“price increases”).

“There are companies that honestly say what they do and others that don’t. if they were transparent [sus aumentos de precios]I think consumers would understand.”considers Iwasa.

Vicious circle

Another classic antidote of Japanese companies to avoid raising prices: contain salaries.

In the 2000s, big japanese bands “They converted many of their indefinite contracts into temporary contracts that cost them much cheaper”. And, with the “employees for life” that they had left, “Raising their salaries is the last thing bosses want to do”according to Nagai.

It’s been a long time since the “spring fight” (“shunt”), as the annual wage negotiations are known in Japan, are combative in name only, as labor unions give job protection a higher priority than wage appreciation.

However, this strategy – practically stagnant salaries for two decades – ends up slowing down household consumption, with which the country has not yet come out of the deflation trap. A vicious circle.

While a strong wind of inflation blows in United States and in Europe since last year, Japan remains an exception: consumer prices (without taxes) fell by 0.2% on average in 2021.

However, in the last six months they have been on a slight wing and in February they registered their strongest growth in two years (+0.6% year-on-year), according to statistics published this Friday.

Inflation could reach 2% in the coming months, according to analysts. The Bank of Japan (BoJ)which has been pursuing this goal for almost ten years, should not be happy about it either.

And it is that imported inflation and aggravated by the depreciation of the yen “will not last”as household consumption remains low, explains Nagai. “Rather, we should worry about a new deflationary shock”point.

Source: Gestion

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