Thursday, October 3, 2013
Price Hikes Spreading To Retail
TOKYO (Nikkei)--Rising prices are moving down the production chain, according to the Bank of Japan's latest tankan business sentiment survey, with more retailers reporting increases than declines for the first time in five years.
The tankan's price diffusion index, determined by subtracting the percentage of firms whose major product and service prices dropped from those citing gains, registered minus 6 for September across all industries, up 3 points from June's survey.
Eight sectors had positive readings. Electric and gas utilities logged the highest DI at 38. The petroleum and coal industry followed at 10, bolstered by higher resource prices.
Increased housing starts pushed up the DI for the lumber and wood products sector to 9, 3 points higher on the quarter. The iron and steel industry returned to a positive DI with an 11-point jump to 8. Toyota Motor Corp.'s (7203) acceptance for the fiscal first half of Nippon Steel & Sumitomo Metal Corp.'s (5401) first steel sheet price increase in two years likely played a role.
And the retail sector saw a positive DI for the first time since the 2008 Lehman shock. With the stage set for stores to raise prices to compensate for next year's consumption tax increase, many expect the trend to continue, with a DI of 6, up 3 points on the quarter, forecast for December.
But whether consumers accustomed to falling prices will readily accept hikes of 3% or more is unclear.
"On the whole, consumers' mindset on prices remains severe. Instead of simply raising prices across the board, companies will have to adopt modulated strategies, such as lowering prices on certain products that appeal to customers while raising the rest," says Kentaro Mori, a partner at Boston Consulting Group.
The BOJ is undertaking large-scale monetary easing with the aim of a 2% increase in consumer prices after two years, making the price DI an important indicator.
"A lot of the consumer price increases up to this point are because of the economic recovery. That doesn't necessarily suggest heightened expectations of inflation," says Tsutomu Watanabe, a professor at the University of Tokyo and an expert in price movements.
For the central bank to reach its 2% target, he says, "there will have to be cues such as wage increases to further change people's expectations about prices."
(The Nikkei, Oct. 3 morning edition)