Wednesday, January 16, 2008

Headed North

A sign from the Communist party expressing the notion that the consumption tax (sales tax) should not be increased.

Last year, I kept reading news about how prices would be going up in Japan "next year", and just 16 days into the new year, they are indeed showing serious signs of doing so. Today when I was at the local drug store buying the same cheapest possible brand of toilet paper that I've been purchasing for two years now, I saw a pretty sizable boost. The price was 198 yen ($1.85) per 12 rolls for the two years I had been purchasing it, but then rose to ¥228 ($2.14) in the last few months of 2007. Now, it is at ¥248 ($2.32). Given the long-term price stability of this particular product, I think it's a good example of the boosts we're going to see and I don't think this was a one-time increase. I think this is where it'll stay (unless it goes up further).

Of course, this isn't the only thing I've noticed which has gone up in price. Butter used to be occasionally on sale for 248 yen ($2.32) per 200 grams (that's about 2 sticks in the U.S. or one cup) and it has not dropped lower than ¥288 ($2.70) for the last 4 months or so and is more frequently over ¥300 ($2.80). Additionally, milk has gone up an average of 10 yen per liter.

If these weren't basic items (and in some cases necessities), price increases wouldn't be a big deal, but the prices of daily goods is clearly headed north while salaries aren't rising much (if at all) for most folks. They certainly aren't going up for my husband or I. I'm guessing that this is just the tip of the iceberg in terms of various food and sundry necessities going up in price, but that isn't all that we have to consider in regards to increases in the cost of living in the near future.

A wall with political posters (including the one pictured at the top).

There has been much talk as of late about raising the consumption tax in Japan from 5% to between 8-15% in order to collect more money for the Japanese pension system. Since the number of young, tax-paying folks is constantly (though slowly) falling and the percentage of people collecting pensions is ballooning, there aren't enough people paying into the system to keep it alive from taxes alone.

Back home in Pennsylvania, sales tax didn't apply to food so that less of a burden was placed on people when it came to buying what they absolutely needed (though it did apply to paper goods like toilet paper so, go figure). In Japan, consumption tax applies to all purchases so it looks like we're headed into 2008 not only paying more for goods we can't avoid buying and facing the prospect of paying a higher tax on those higher prices.

Personally, I think that this is going to reduce purchasing overall and cause the Japanese to re-think or avoid "luxury" goods like new cell phones, televisions, cars, etc. and have an overall negative impact on the economy. I'm guessing the government is hoping people will choose to freeze up less of their yen in savings accounts and maintain their current standard of living, but given that most Japanese people are fiscally conservative, I'd wager on them scaling back and maintaining their level of savings at the cost of their lifestyle.

13 comments:

ThePenguin said...

Last time I was living in Japan (1997) the consumption tax went up from 3% to 5%, which went quite a way to strangling the then nascent slight recovery.

Here in Germany VAT (effectively the same thing) went from 16% to 19% last year (on everything except food and publications), but as VAT is included in the marked up price it didn't hurt quite as much.

Methinks we're in for a global round of inflation on essentials due to increasing demand and constricted resources...

Shari said...

I think that, if the tax is not applied to food, then it's not a big problem. However, I doubt the tax will be applied only to non-essential goods.

There are a lot of old folks living on very small pensions in Japan. In fact, some in rural areas live on the base government pension of only 60,000 yen a month. Such increases will impose a huge hardship on them.

It's going to get worse once China finally properly adjusts its currency and prices reflect the increased cost of production and doing business there. We're in for huge hit at some point.

A Joe said...

One of the ironies in politics. When politicians say they are doing something to help a group of people, it's usually true that they are the ones who are indirectly hurt the most. Bush is a pretty glaring example of that actually.

U.S.A. is already feeling the hit, particularly by inflation. It's only a matter of time it spreads to Japan.

Shari said...

A Joe: The situation in the U.S. right now frankly scares me. If I were inclined to go back now, the economic and especially the political system would make me fear for my ability to cope even though my husband and I have an adequate nest egg built up. I think that the U.S. is careening toward second world status unless something improves. That may not necessarily be a bad thing in terms of it elevating underdeveloped countries but it's going to lower the quality of life in the U.S. and cause social strife.

I could be guilty though of being afraid of things because I've been away so long. People who live abroad for a long time often develop irrational ideas about their homes and I certainly may not be immune to that tendency!

Thanks for commenting!

A Joe said...

Frankly, I don't think it is even a possibly that U.S.A. reclines to a second world status.

Smart U.S.A. multinational corps have already spread their reach into other countries thanks to NAFTA. Sadly, folks feeling the most reel are your "average working people."

Sometimes I feel I hardly know anything about my country even though I actually live here.

:-)

ThePenguin said...

I think there's a lot more doom-and-gloom being spread about in the media than there needs to be.

For some (Euro-centric) perspective: in Germany last year a litre of milk went up from 55 cents to 77c, a 40% rise, and there was a great gnashing of teeth and general bemoaning of the ensuing wallet damage. However, I remember when I first moved to Germany in 1991, a litre of milk was 71 cents (it dropped in price in the intervening period); taking inflation into account, it's probably still slightly cheaper than it was then. Or as someone else pointed out, despite having suffered a similar price rise, butter - when compared to general wages and price levels - still costs far less than it did 40 years ago.

Jon said...

This post worries me - someone who plans to join the JET program in about 4 years or so. Just think how high prices on various goods will be by then...I wonder if it could even hinder my stay there.

kuriharu said...

There is something really ironic here. Why is Japan's Communist Party AGAINST a tax increase? That doesn't make sense. Not only should they be all for the tax increase, they should be the ones behind it! It's us free-market heathens that believe in tax cuts.

I remember back when there wasn't a consumption tax at all in Japan. Haven't they noticed that increasing the tax DOESN'T work? Where is the Japan Libertarian Party? (I know, it doesn't exist).

Silly question, but could Japan reduce the amount they actually SPEND? How about less pensions and people actually paying more for their health care? Japan believes in competition in other areas, so why not in entitlements?

mike said...

Here in the state, the Federal Government is considering an additional 40 cents tax on gasoline to help pay for infrastructure improvements. This comes after the I-35 bridge collapse in Minnesota.

This will push gas to over $4.00 in my area. Diesel will be about $4.50 per gallon.

This will, of course, filter down to commodity goods prices like milk, produce and more because suppliers will have to pay more for transit.

It sucks to be us.

Shari said...

Jon: I don't know if the consumption tax increase is a lock, though it does appear to be very likely. I think that, in real terms, this will likely increase the cost of living by no more than 10,000 yen per month (likely less). It'll scale back your ability to save or do a few things like eat out or take a day trip once a month, but it shouldn't dissuade you. The main problem is that salaries for teachers are flat (or decreasing a bit) because of the overabundance of teachers after Nova's failure.

Kuriharu: You make very good points. I think that the stands that parties in Japan take tend to be relatively random based on what gets them elected rather than on the ideology that one would expect the party to have. It's part of the reason Japanese people tend to be apathetic about politics. They think it doesn't matter who they elect, they're all the same.

Unfortunately, the pension problem is very difficult. There are a lot of retirees who paid into the system and are entitled to be supported by it in their old age. Many of them would die (literally) without it or face incredible hardship. This is directly related to the low birthrate.

The health insurance premiums actually rose last year (for me, they nearly doubled as a percentage of my income).

Since there is news of people starving to death and dying on the streets in rural areas of Japan, I think social spending expenses can't be reduced really, but there is certainly a lot of bureaucratic waste that could be cut. However, it's pretty unlikely because Japan is notoriously bad at undoing institutions once they are in place.

Thanks very much to both of you for commenting!

Shari said...

Mike: I guess that there is a "bright side" to all of this. It'll perhaps increase the move to "buy local" and possibly increase the value of local growers and farms since the expense of transporting from further away adds to price. That'd then have a positive effect on the environment.

Still, it's going to hurt folks in rural areas who have to use their cars to get around.

Thanks for commenting and reading!

Anonymous said...

shari:" I think that the stands that parties in Japan take tend to be relatively random."

Not really. The battle between LDP and opposition parties has been battle between liberty and equality for more than half a century. LDP supports liberty. Oppositions consistently support equality, so they want to increase income tax for high income people and want to reduce the consumption tax especially for food and necessary goods.
I think your idea is more in line with JCP.

Shari said...

Actually, anonymous, I should have put this ;-) after what I said as my tongue was in my cheek and I was being a bit sarcastic. However, it was my mistake that lead to a misunderstanding and I apologize.