Japan coffee shop owner can't wait for his business because of price hikes

TOKYO Reuters - In 50 years of running a cafe in Tokyo, Shizuo Mori can't remember a time when his coffee supplies cost so much.

The 78-year-old who owns Heckeln, an old coffee shop in Tokyo's business district of Toranomon, says the wholesale cost of his main product has surged 5% in the last three months.

That is a jolting experience for a country where weak growth has meant that prices of many things haven't risen much in decades.

While he has not yet passed on the increase to his customers - coffee in his cramped shop costs 400 yen $3.50 a cup - price pressures are reducing his bottom line and he knows his regulars have low tolerance for such hikes.

Salarymen don't get paid a lot, so everyone will stop drinking if prices are too high, said Mori, whose shop is famous for its caramel sauce pudding, slabs of buttered toast and ham and egg sandwiches.

Across Japan, consumers and businesses like Heckeln face sticker shock for everything from coffee, beef bowls and other items whose prices have barely budged during the country's decades of deflation.

Japan's deflationary inflation - which excludes food prices - stopped falling in August, snapping a 12 - month deflationary spell. Economists and policymakers are expected to see the recent price increases reflected in official data in the coming months.

Although Japan's inflation is still modest by global standards, surging raw material costs are: https: www.reuters.org. com world asia-pacific japan-wholesale inflation spikes - squeezing-corporate profits - 2021-2011 have made it almost impossible for firms in the world's third-largest economy not to pass wholesale price hikes, something they typically resisted for fear of losing business.

For younger Japanese, many with no memory of significant price hikes, that has come as a rude surprise especially as households, workers and businesses struggle to shake off the economic hit from the pandemic.

It's terrible - incomes haven't changed. People are becoming increasingly poor, said Yuka Urakawa, 23, working in the beauty industry and was going to a noodle dinner near Yurakucho station in Tokyo.

According to her friend, Matsuya Foods has noticed changes in the prices of beef bowls at restaurant chains like Barefoot.

At most of its outlets, Matsuya has stopped selling its 380 yen premium beef bowl and started offering regular bowls using cheaper ingredients such as frozen beef and Chinese spring onions for the same price.

Dairy product maker Meiji Holdings has hiked margarine prices to 12.8%, the first increase since 2008, and other food companies have also raised prices on their main product lines for the first time in years.

It feels like Japan's prices were too cheap for too long compared to other countries, said Nozomi Yuasa, 28, who was also having dinner near Yurakucho International Station and has noticed price increases in eggs, dairy and candy.

The Bank of Japan's quarterly Tankan business survey in October showed more companies facing higher input costs, but also seeing rises in the price they charge to customers.

While the central bank has been working on stabilizing consumer prices for years, its strategy has been to do so by stoking demand. On the other hand, inflation caused by increased supply is unwelcome, especially when it is not matched by constrained wages.

Aware of households' sensitivity to price hikes, some firms tread carefully Aeon Co Ltd, Japan's largest retail in sales, said it will not raise prices on about 3,000 products from its own brand Topvalu products this year, instead seeking to keep cost low in part by bulk-buying.

Japan's demand recovery is lagging due to coronavirus, said Hiroaki Muto, economist in Sumitomo Life Insurance Co.

If there is price rises, it'll mean lower demand.