Kantaro Komiya and Tetsushi Kajimoto. Daniel Leussink

TOKYO, Reuters – The war in Ukraine is driving up input costs already high. Even Japanese-based businesses are testing higher prices to test acceptance from consumers who have been hardened by the repeated assertions of an elusive inflation goal.

The rise in street prices has been exacerbated by wholesale inflation at record levels. Increases in commodities like oil have reached shop shelves, as well as higher plastic packaging.

Japan’s knock-on effect means that companies, which have been subject to deflation for nearly 20 years, are now able to pass costs on more easily than ever. Firms have also given unexpected price increases to popular brands of instant noodles, snack oils, and cooking oil.

Inflationary pressure is so severe that many firms have abandoned business models that assume constant deflation.

Shota Sughara from Teikoku Databank, analyst said “Companies who add value to products and services can raise prices more sustainably.”

Companies should abandon deflationary behavior in price setting to improve profit and wages.

Sushiro sushi, a conveyer-belt chain, is known for making this delicacy less expensive with its 100yen ($0.85) menu. Sushiro has now expanded its 150yen and 300yen selections.

Many visitors are accustomed to eating 100 yen food, and we make sure that they are satisfied. But we’re also seeing more customers willing to pay for finer sushi,” said Koichi Mizutome, chief executive of Sushiro parent Food & Life Companies Ltd.

Benny Super, a small supermarket chain, is ending a long-running price-cutting battle by substituting as much as half its products with high-margin options such as New Zealand culinary oil, Greece, and Italy.

We will stock rare and small-quantity products that are not available from other companies. This strategy works well in inflation times,” stated Tomoya Akatsu, Benny Super owner.

Kobe Bussan Co Ltd increased the price of nearly 4,000 items that it sells in its discount supermarkets.

A third of these items are manufactured at Kobe Bussan’s overseas and domestic factories. This gives the company a stronger pricing advantage than other foodstuffs.

You can also find a range of unusual imported goods like frozen waffles in Belgium and hummus out Jordan.

HirokazuNumata, Kobe Bussan president said “We have gradually raised the prices of our products from 10 years ago because we realized that it would be more difficult to maintain profit.”

URGENCY

Russia’s invading of Ukraine is having a major economic impact. This has only increased the need to move away from deflationist business models. Grain prices are on the rise, oil prices hit record heights and sanctions against Russia have made it difficult to access supply lines. Russia refers to its intervention in Ukraine as “special operations”.

Though modest by global standards, Japan’s core consumer inflation – which excludes volatile fresh food prices – is widely expected https://tmsnrt.rs/35ZneCt to speed up https://tmsnrt.rs/3tZqVzV from April toward the 2% target the Bank of Japan set in 2013 and reached only during the fiscal year ended March 2015.

(Graphic: Japanese consumers expect inflation to top 2%, https://graphics.reuters.com/JAPAN-ECONOMY/DEFLATION/xmpjoemxevr/chart.png)

(Graphic: Japan’s wholesale inflation is soaring, https://graphics.reuters.com/JAPAN-ECONOMY/DEFLATION/klpykbwjnpg/chart.png)

A January survey of 500 companies revealed that 21% had increased prices in January, compared to 15% mid-2021.

Incorporating those that plan to increase their prices, this ratio has increased to 64%, from 61% during the last survey. It indicates more of the costs are being passed on. The ratio of people who raised or intended to raise prices dropped from 61% in the previous survey to 9% in 2016. 7% were planning cuts.

In February, Teikoku Databank conducted a survey to determine whether 41% of those surveyed in various industries such as construction, clothing and chemicals could pass on increasing raw material costs.

With increasing price increases for daily essentials and very little wage rises, many households might not be able to spend on more expensive items.

The Bank of Japan and other skeptics question the possibility of prices rising. However, they fear that surging fuel costs will lead to higher wages, which could cause a slowdown in spending.

Sushiro Mizutome stated that “for many customers it’s still cheaper the better.” We are slowly, but cautiously trying to raise the average customer’s spending per visit.

($1 = 118.2000 yen)