Economy Food prices unlikely to fall despite consumption tax suspension

[thomas]

Yeah, don't expect too much:

PM Takaichi plans to suspend Japan's consumption tax on food to ease inflationary pressure, though some economists question whether the move would lower consumer prices. Analysts point to overseas examples suggesting tax cuts do not always translate into lower retail prices. Some businesses that have absorbed higher import costs linked to the weak yen may instead use the suspension to raise prices they had previously held back. After its landslide victory in the 8 February general election, the ruling coalition is seeking to remove the current 8% tax on food for two years.

Cross-party discussions began on Friday to work out the details of the proposal. Takaichi aims to submit legislation as early as this autumn to implement the measure. Japan raised the overall consumption tax to 10% in 2019 while keeping food at a reduced 8% rate. A government survey that year found that prices increased for 31 of 40 items surveyed, including goods subject to the lower rate.

Previous tax cuts overseas may offer some lessons for Japan, according to experts. A 14 percentage point cut in value-added tax for hairdressing services in Finland had only a limited impact between 2007 and 2011, while the suspension of Argentina's 21 percent tax on food products led to an average price drop of 10 percent. In Portugal, however, the suspension in 2023 of 6 percent tax on some food products was directly reflected in retail prices, according to the experts. Makoto Hasegawa, an associate professor of finance at Kyoto University, said prices in Portugal were already deflationary at the stage of production and businesses were facing pressure from consumer groups and the media to lower prices. It remains unclear whether Japan will also see similar results if the tax suspension is implemented, according to Hasegawa.

Japan's consumption tax suspension may not result in lower food prices

Prime Minister Sanae Takaichi aims to suspend the country's consumption tax on food to alleviate the pain of persistent inflation, but some experts, drawing on overseas precedents, are questioning whether it will substantially reduce consumer prices.

english.kyodonews.net

In related news, Kyodo won the contest for Weirdest Headline (below reprinted by Mainichi).

No. of price hikes among food items in Japan to fall 70% in March to 684 items

So the prices of only 684 products will increase in March. Pop the champagne bottles.

Price hikes for food and beverage items in March will total 684 products, down 70%from a year earlier, a sign that food prices are rising more slowly though the weak yen could still push them up, a research institute said Friday.

No. of price hikes among food items in Japan to fall 70% in March to 684 items - The Mainichi

TOKYO (Kyodo) -- Price hikes for food and beverage items in March will total 684 products, down 70 percent from a year earlier, a sign that food price

mainichi.jp

 

[Lothor]

Assuming that prices will fall if consumption tax is removed is fatally flawed, as companies charge what they think the market will bear. There was certainly no reduction in the prices of imports when the yen rose to almost twice its current level 15 years ago (apart from the occasional half-hearted 円高還元感謝セール in Kaldi).

Let's take chocolate in Japan as an example, the price of which has roughly doubled as a result of a price spike in the bean.

Except, as you can see from the graph below, the price spike is over (despite the very recent news stories about how manufacturers are being forced to pass on higher cocoa prices to consumers through more expensive Valentine's chocolates). Prices are back at their long-term levels, but I would be very surprised if manufacturers lower their prices now that people have got used to more expensive chocolate.

The fact that prices of different companies' products are often identical (beer in convenience stores) suggests that manufacturers collude, and it is highly likely they will agree to maintain current prices despite the reduction in tax. It may even hurt consumers in the long term, as companies 'regretfully' have to increase prices by 8% when sales tax is reimposed when the 2-year exemption ends.

 

[mdchachi]

Don't they mean the 税込み price? That should go down.

 

[thomas]

Price rises for food and drink products in Japan are on course to reach 20,000 items this year, for the second year in a row, largely due to higher material costs linked to the Middle East crisis. The weaker yen is adding more pressure. Teikoku Databank said on 30 June that companies were expected to keep passing higher costs on to consumers through product prices.

Its survey of 195 major manufacturers found that price increases had either been introduced or scheduled for 14,902 products between January and November. By month, price hikes are planned for 2,566 items in July, 1,898 in August and 3,029 in September.

When asked to choose one or more reasons for raising prices, 92.5 percent of companies cited higher raw materials costs, 71.9 percent selected logistics expenses and 69.8 percent pointed to packaging and other materials. These factors are all susceptible to higher crude oil prices, indicating that companies are reflecting increased costs stemming from the Middle East conflict in product prices. By category, processed foods, such as frozen foods, accounted for the largest number of planned price hikes at 5,780 items. They were followed by seasonings at 3,467 items and alcoholic beverages and soft drinks at 2,913 items. Calbee Inc. will begin raising prices in stages for products such as potato chips on deliveries from Oct. 1, with retail prices expected to rise by around 3-15 percent. NH Foods Ltd., which changed its name from Nippon Meat Packers Inc. in 2014, will raise prices for its flagship Schau Essen sausages, while Kirin Beverage Co. is increasing prices for Nama Cha green tea and Gogo no Kocha black tea drinks.

Japan braces for 20,000 food price hikes again amid Mideast turmoil | The Asahi Shimbun: Breaking News, Japan News and Analysis

 

[musicisgood]

Assuming that prices will fall if consumption tax is removed is fatally flawed, as companies charge what they think the market will bear. There was certainly no reduction in the prices of imports when the yen rose to almost twice its current level 15 years ago (apart from the occasional half-hearted 円高還元感謝セール in Kaldi).

Let's take chocolate in Japan as an example, the price of which has roughly doubled as a result of a price spike in the bean.

Except, as you can see from the graph below, the price spike is over (despite the very recent news stories about how manufacturers are being forced to pass on higher cocoa prices to consumers through more expensive Valentine's chocolates). Prices are back at their long-term levels, but I would be very surprised if manufacturers lower their prices now that people have got used to more expensive chocolate.

The fact that prices of different companies' products are often identical (beer in convenience stores) suggests that manufacturers collude, and it is highly likely they will agree to maintain current prices despite the reduction in tax. It may even hurt consumers in the long term, as companies 'regretfully' have to increase prices by 8% when sales tax is reimposed when the 2-year exemption ends.

View attachment 135411

chocolate bars at 7-11 now are at 217 yen. Forget that price and the bars are wafer thin too.