Japan Press Weekly

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2014 July 30 - August 12 [ECONOMY]

Drop in consumer spending is more serious than at time of 1997 tax hike

A survey the internal affairs ministry published on July 29 shows that household consumption expenditure last month fell much more than it did soon after the consumption tax rate went up in 1997.

Using the previous year’s average as 100, the household expenditure index in June after the sales tax rose from 5% to 8% was 93.9. The average of monthly household expenditures amounted to 272,791 yen per household with two people or more. The decrease in spending stood out in utility bill payments, education, and recreation expenses.

The index was 99.7 after the consumption tax was introduced in 1989, and was 99.1 after the tax rate increased from 3% to 5% in 1997.

The ongoing decrease in household income is causing the decline in consumption expenditure. The average of after-tax income per household was 568,874 yen last month, down 8.0% in real terms from a year earlier.

The tax-hike backlash hit retailers as well. Retail sales have had three consecutive months of decline since the sales tax increase was imposed in April. This was a 0.6% decrease over the previous year, according to statistics released by the ministry of economy and industry on July 29.