Japan Wholesale Prices: Updated Jan. 29

 Article Source:    https://mainichi.jp/english/articles/20220114/p2g/00m/0bu/024000c

Article:

TOKYO (Kyodo) -- Japan's wholesale prices jumped 8.5 percent from a year earlier in December, marking the second-highest increase on record amid higher crude oil and commodity prices, Bank of Japan data showed Friday.

The rise in the prices of goods traded between companies followed a record 9.2 percent gain in November and marked the 10th straight month of growth, an indication that upward pressure on consumer prices is persisting.

The BOJ data also showed wholesale prices gained 4.8 percent in 2021, the highest since comparable data became available in 1981, reflecting rising energy prices that came with a global economic recovery from the COVID-19 shock a year earlier.

Ideas:

Its only a matter of time before companies begin to pass on some or all of their increased costs to customers.

In the past Japanese companies have been reluctant to pass on their costs to customers. But this might be a different situation or era for the Japanese economy as wholesale prices have risen the highest since 1981, and companies are under pressure to maybe keep a specific profit margin along with maybe meet profitablity and shareholder expectations.

If they do begin to pass on thier costs, which some have done, it might mean the Bank of Japan's goal of 2 percent consumer inflaation will be reached. It mean it moves in that direction but for it really move forward there has to be a significant increase in consumer spending which have happened yet.

Households most likely are aslo feeling the effects of increased energy prices as their home energy prices, including gasoline prices, might have already seen significant increases, which might decrease the amount of disposable income of some households, such as the lower middle class and middle class families, and as such they will have less to spend in the economy on other things.

Article:

Higher input costs have prompted Japanese firms to gradually pass them on to consumers, leading to higher fuel and food prices.

The yen's weakness is also boosting import prices, a headache for resource-poor Japan.

The BOJ, which has a long-standing consumer inflation target of 2 percent, has been watching how widespread price hikes will be across sectors, with consumers starting to feel the impact of rising prices of food and other items.

In December, prices of petroleum and coal jumped 36.6 percent, tracking higher crude oil prices. The gain was smaller than a revised 49.6 percent a month earlier.

Ideas:

HIgher input costs might be the new normal in the Jaapnese economy, meaning higher inputs for now might just be an expected economic situation like what is happening globally.

While other countries have seen major increases in inflation, Japan has yet to see the same increases that the US has which was the highest in over 40 years.

But companies in the US are not afraid to pass on their costs to those next in line including consumers, while Japanese companies have been somewhat reluctant to pass on costs, which means they have less room for investments, increasing salaries and other areas that might be important for the growth of the Japanese economy.

No doubt the weak yen is having a major affects on Japanese importers, and if costs continue increase they might have no choice to pass on some or all of their costs, if they haven't already.

A month decrease in energy prices doesn't mean the prices are beginning to trend downward. As the winter continues on it will be interesting to see if energy prices in Japan and globally are beginning to level off.

If food prices begin to get too high maybe some consumers will begin to seek out substitutes for some food products. But sometimes there are only so many substitutes available which means consumers either have to buy some items at the higher prices or not buy them at all.

Article:

Iron and steel, as well as nonferrous metal prices, also rose, up 25.5 percent and 26.9 percent, respectively. Lumber and wood product prices advanced 61.3 percent as demand remained strong.

"We can observe higher commodity prices passed on to wholesale prices," a BOJ official said, adding that price increases were seen widely.

Consumer prices have been rising in recent months but the increase remains moderate compared with the surge in wholesale prices, partly because companies are often reluctant to raise consumer prices for fear of dampening demand.

Ideas:

Commodities as shown above most likely are all imported items which means they are subject to the weak yen and Japanese importers have had to pass on their cost increases to wholesalers.

But just what are wholesalers going to do with an increase in prices, as again companies are still somewhat reluctant to pass on their costs. Which again might mean they have reduced profit margins which means less room for extra investments and less room for salary increases of their employees that Prime Minister Kishida wants to see.

And of course wholesalers are worried about a reduction in demand, as maybe a wholesale customer will seek out other wholesalers who offer a lower price just like a customer/consumer at a supermarket might look for substitutes and even seek out other supermarkets where maybe the prices might be lower.

But maybe, just maybe, if there were sector-wide passing on prices to the next in line, wholesalers then wouldn't need to worry as much as losing customers as all other wholesalers have aslo increased their prices and companies maybe then would have to concentrate on improving their customer service and other areas and not have to focus so much on whether a price increase is going to force customers to leave and go to another wholesaler.

Article:

Still, a combined 77.4 percent of respondents in a recent BOJ survey said that prices gained considerably or slightly from a year earlier, marking the highest level in six years.

Import prices soared 41.9 percent due to the yen's depreciation while export prices gained 13.5 percent, both in yen terms.

Ideas:

It has to be remembered that Japanese consumers/customers are for the most part very price conscious and have been for many years.

So just because 77.4 percent of respondents said there were price increases its hard to see what did they do related to the price increases.

Did they buy anyway, did they look for substitutes related to the price increases, did they look for different supermarkets for example if its an increase in food prices they didn't like and so on.

Prices might have risen the highest in six years , but again what was the response of consumers other maybe thinking they don't like the price increases.

Consumer spending is always a major challenge in the Japanese economy and with the increases prices now and in the future is it going to have an affect on consumer spending.

But if the BOJ survey is related to wholesalers then what are they going to do. Just sit on the price increases with little or no room for other activities with lower profit margins or are they going pass on some or all of their costs to the next in line.

Most likely Japanese importers are going to have no choice as a 41.9 percent increase might be too much if the weak yen continues on like it is expected to be. 

Importers then will have smaller and smaller profit margins to operate and have to pass their cost to the next in line such as wholesalers or the middleman in the supply chain.

Have a nice day and be safe!