Economy Food prices unlikely to fall despite consumption tax suspension

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.

Click to expand...

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

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.

Click to expand...

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.

Click to expand...

Lothor said:

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

Click to expand...