Beer, Chicken Price Hikes Show Japan Inflation at Tipping Point

(Bloomberg) -- A rare price hike by a Japanese brewer has intensified a debate over whether local firms are finally shunning their decades-old deflationary mindset in a bid to protect profit margins.

Shares of Asahi Group Holdings Ltd. jumped as much as 7% last Wednesday after the company said it would raise prices for its ‘Super Dry' beer and other beverages for the first time in years. Convenience-store operator Lawson Inc. earlier this month said it would increase rates for its popular “Karaage-Kun” fried chicken for the first time in 36 years.

While inflation in Japan is still muted versus other nations, energy and input prices for businesses have been climbing at the fastest pace in over four decades -- thanks to supply disruptions caused by the war in Ukraine and the yen's plunge.

That's posed a rather unfamiliar challenge for Japanese firms, which have grown reluctant to pass on higher costs after years of deflation and anemic wage growth rendered consumers too sensitive to price hikes.

Market watchers say this time may be different.

“For Japanese companies, now is one of the easiest times in many years to hike prices,” said Hiroyuki Ueno, senior strategist at Sumitomo Mitsui Trust Asset Management Co. “Almost everyone knows that the price of raw materials is rising so much. And opinion polls show most people support sanctions against Russia even if that means a bit of inflation.”

Asahi cited rising costs for everything from malt and corn to packaging materials like aluminum and cardboard, as well as transportation, for its price hikes.

Shares of its rivals also rallied, even as history indicates that price increases have been a tough sell in Japan. After restaurant chain Torikizoku Holdings Co. announced its first price hike in almost 30 years in 2017, the number of its customers fell and revenue growth slowed. The stock price is still less than half of the peak hit in 2017.

‘Have to Change'

Ohsho Food Service Corp., which operates Chinese restaurants, said last week that it would raise the prices of about a fifth of the items on its menu by about 20-30 yen (about 20 cents) to reflect rising costs of wheat and oil, as well as higher labor and logistic charges. 

Its stock capped a third day of gains on Thursday. Japan markets were shut for a holiday on Friday.

Still, some companies, especially in the consumer discretionary sector, may find it tougher to raise prices as consumers remain accustomed to an unchanging cost of living. 

“Though not all the companies will be able to raise prices, companies for daily necessities will have to change,” said Tomoichiro Kubota, senior market analyst at Matsui Securities Co. “I think they will go in the direction of raising prices.”

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