Consumer Prices, Corporate Earnings, and Wage Hikes

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Consumer Prices, Corporate Earnings, and Wage Hikes

In fiscal 2023, the GDP deflator in Japan experienced its largest increase since 1981, rising by 4.1 percent compared to the previous year. The study conducted by The Asahi Shimbun indicates that although wage hikes during the 2023 labor offensive were notable, they only contributed minimally, about 0.3 percentage point, to the overall growth in the GDP deflator. The rest of the price increase was predominantly attributed to higher corporate earnings, alongside factors such as reductions in company fixed assets and indirect taxes.

The report highlights that despite the significant wage hikes experienced in Japan in 2023, with average increases at 3.58 percent - a level unseen in 30 years, real wages decreased for 24 consecutive months until March. This decline in real wages has resulted in continued financial struggles for households, despite the boost in wages and the surge in corporate earnings. Kazuo Momma from Mizuho Research & Technologies Ltd. suggests that companies may have been hesitant to increase wages due to future uncertainties, but with import prices stabilizing, the time is ripe for companies to prioritize raising wages to ease the financial burden on households.

An analysis by the Development Bank of Japan (DBJ) compared changes in the GDP deflator globally, highlighting similar trends of consumer price increases driven by expanding corporate earnings in Europe and the United States. The increase in Japan's GDP deflator, as explained by Koji Wada from DBJ, largely reflects an expansion in corporate earnings, allowing companies to pass on higher costs to consumers through increased product prices - a phenomenon that has been termed 'greedflation.'