Bank of Japan Lifestyle Survey: 89% expect higher prices over the following year

July 6, 2008
By Ken Worsley

The Bank of Japan released the 34th edition of its quarterly lifestyle survey last Friday, and one result that immediately catches the eye is that 88.9% of those surveyed reported that they expect consumer prices to rise further in the coming year. This figure was 2.9% higher than the last survey done in February and March, and is the highest figure ever seen in the survey’s history (dating from March 1997).

The survey’s first question might be its most worrying. When asked whether lifestyle conditions now were better than a year ago, only 1.7% responded they were better, while 28.8% said they had not changed and 69% replied that they had gotten worse. In December, 45.5% had reported conditions being worse, while in March that figure had shot up to 60.1%.

When asked if lifestyle conditions would be better a year from now, only 2.2% replied that they expect improvement, while 36.9% expected no change and 60.5% saw things getting worse. In March, 47.3% had said they expected conditions to worsen.

When asked about income, 7.7% reported it had improved over the past year, while 46.4% reported worsening conditions. Only 5.9% expect to see an increase in income over the coming year.

Back to prices: When asked what percentage increase they expected, the median reply came to a 7% increase in consumer prices over the coming year. That answer was 2% higher than the previous survey. Interestingly, respondents anticipating a fall in land prices increased, with 29.8% saying they expect a fall in prices while 22.4% say they expect an increase.

Although the survey does not go into great detail over consumers’ feelings on the economy and lifestyle conditions, we do know that Japan’s core (minus fresh food and energy) consumer prices still look deflationary (Our recent post on that is here, and Claus Vistesen has further explored the matter here). Consumers have been stung primarily by higher energy and food costs, and firms seem yet to have passed these costs full-bore to the consumers in other areas.

Do Japan’s workers and consumers have much justification in this pessimism? As Claus points out, “The amount of small-cap companies, who constitute 70% of the Japanese workforce, filing for bankruptcies rose 18% in the year ending March.” It’s difficult to imagine wage growth assuming an overall trend in such an environment, and thus one is forced to wonder whether non-energy and food price hikes are only a matter of time.

Filed Under Bank of Japan, Economic Reports