Heavy burden on household budgets
November 25, 2021
The impact of high oil prices on the Japanese economy will be widespread.
Business performance will suffer if companies do not pass the burden onto customers, and higher prices are likely to hit consumer spending, which is still recovering from the COVID-19 pandemic.
Dai-ichi Life Research Institute Inc.’s chief economist Toshihiro Nagahama estimates that if the Dubai crude futures price — an indicator of crude oil prices in Japan — stays around $80 per barrel, it will cost households an additional ¥28,000 a year. If the price reaches $90, the burden is an additional ¥33,000 a year.
“Even after the restriction of people movement as measures against the coronavirus had been eased, the recovery of consumer spending has been limited,” Nagahama said. “If consumers’ burden of crude price hike increases in earnest, the recovery may slow down further.”
The impact on households could extend beyond gasoline prices as importers look to pass the burden of increased shipping costs onto consumers.
The spokesperson of a shipping firm said its customers would have to bear part of the burden of higher fuel prices.
There are also concerns about the negative impact on corporate earnings.
Executive Economist Takahide Kiuchi of Nomura Research Institute Ltd. said that price increases since the beginning of the year would push annual corporate profits down by about 8% and capital investment down by about 0.2%.
Airline fares for international flights have already risen, dampening demand for overseas business trips.
Amid weak consumer spending, “Japanese firms may not be able to fully reflect [crude price] increases in prices [of their products],” Kiuchi said.
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