Consumer Sentiment at the Midpoint of the Consumption Tax Hike

The consumption tax, raised from 5% to 8% in April 2014, will increase again to 10% in April 2017. We are now, so to speak, at the halfway point between the "post-tax hike" and "pre-tax hike" eras. How have consumers' attitudes toward spending changed in the roughly year and a half since the tax hike?

The cooling of consumer sentiment due to the consumption tax hike became clearly apparent around summer 2014. Factors like weak GDP growth from April to June and price hikes for goods due to yen depreciation also impacted consumer sentiment. Looking at the "Dentsu Inc. Consumer Mind Survey" (September 2014 survey) and the question "When do you think consumption will return to pre-tax-hike levels?", over 30% of respondents answered "No change since immediately after the tax hike," while 40% stated "Consumption will never return to pre-tax-hike levels."

Now, let's consider what might happen next. Looking at consumption trends before the 8% tax hike, durable goods like home appliances are likely to peak around December next year, while food and daily necessities may peak during the last two weeks of March the following year. That said, consumers have already experienced one tax hike, so the kind of indiscriminate bulk buying seen last time seems less likely.

On the other hand, survey results indicate that the psychological pressure felt by consumers is greater when the tax rate rises from 8% to 10% than when it rose from 5% to 8%. Consumers seem to perceive the tax increase not as a "2% rise" but as "reaching 10%." If the post-tax hike consumption slump proves more severe than last time, further measures will be needed to prepare for the 10% era. There is still time now to develop and nurture value-added products that avoid falling into price competition. We are already in the "pre-tax hike" phase. It's never too early to prepare for the 10% era.

---

Details of the Consumer Sentiment Survey can be viewed here.
dii.dentsu.jp/