- POSTED: 27 Sep 2013 16:46
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Japan appears on track to end 15 years of deflation with core consumer prices rising for a third straight month but how are the higher prices affecting the average Japanese consumer?
TOKYO: Japan appears on track towards ending 15 years of deflation.
Core consumer prices rose 0.8 per cent in August, the third straight month of increase. It's also the fastest increase in nearly five years.
Luxury brands, especially imports, are now priced higher than three months ago.
However, the higher prices don't seem to affect the luxury brands in the Matsuya departmental store in glitzy Ginza.
The store recently underwent a large scale facelift that cost some three billion yen (US$30 million).
The Louis Vuitton outlet in the revamped mall has been expanded and is now the only one in Asia stocked with the full category items, including stationery.
Takehiko Furuya, general store manager of Matsuya, admitted while prices are higher than before, it's not affecting consumer sentiment.
"This year, from January, the economy is getting better. It's getting stronger and stronger. People are positive to use money if the product is good."
Higher prices are what Japanese Prime Minister Shinzo Abe wants to see. He has committed to bring Japan out of a 15 year long deflation.
Abe has set the Bank of Japan (BOJ) a target - to achieve two per cent inflation target in two years. This is the first part of Abenomics, which includes BOJ doubling its holding of government bonds and expanding its monetary base.
Aside from luxury goods, prices of products made of wheat have also gone up. This means that hamburger chains will have to set higher prices while Yakult will no longer be able to sell its popular fermented drink at the same price it has maintained for the past 22 years.
However, this type of inflation may not be sustainable, said Mizuho Research Institute's senior economist Hidenobu Tokuda.
"Basically, energy and the weak yen are heightening costs, causing prices to rise. It's not a sustainable movement as rise of every cost is being reflected temporarily. We cannot say outright that this will lead to a sustainable inflation," he explained.
Although summer bonuses were higher, Tokuda believes companies are not ready to raise incomes.
"I think the environment will be so that it will be difficult to raise incomes until next year," he said.
The next big challenge for retailers is a possible consumption tax hike from the current five per cent to eight per cent next April.
Abe is expected to announce his tax reform plan next week.