April 18, 2013 5:16 pm

McDonald’s joins inflation drive in Japan

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McDonald’s is doing its bit for Japan’s drive to push up inflation by raising the cost of its hamburgers, risking a backlash from customers in a country where incomes rarely rise.

In a statement on Thursday, the Japanese affiliate of the US fast-food giant said the price of a hamburger would go up to Y120 ($1.22) from Y100 from next month at its 3,300 restaurants around the country, while a cheeseburger would cost Y150, up from Y120.

The price rises are the first in five years, at what is McDonald’s largest affiliate outside the US. Consumers at an outlet in Matsudo, half an hour east of Tokyo, seemed taken aback by the prospect.

“If prices go up, I will try to use coupons more and think more carefully what to order,” said Satomi Chiba, a 42-year-old part-time helper at a nursery, who takes her family of four to McDonald’s “two or three” times a month.

The move comes amid concerted efforts by policymakers to banish the mild but persistent deflation that has pervaded the world’s third largest economy for most of the past 15 years. Shinzo Abe, the prime minister emphatically elected in December, has so far pushed for Y10tn of extra spending through the budget while leaning on the Bank of Japan to open the floodgates of liquidity.

Haruhiko Kuroda, the new BoJ governor, obliged this month, pledging to double the amount of money in the economy within two years to achieve a 2 per cent rate of inflation, from below zero now. The prospect of such aggressive monetary easing has helped drive the yen down almost a fifth against the dollar since mid-November, and has led to a surge in prices of stocks and other assets.

Tokyo’s financial district has begun to buzz once more. One visiting banker said it took him eight minutes this week to find a taxi in a street normally lined with idling cabs.

Attention is switching to evidence of inflationary pressures building in the broader economy. While the weaker yen has caused costs for fuel and other imports to rise, many companies have so far been reluctant to lift their final prices, for fear of losing market share.

Tokyo Shimbun, for example, raised the newsstand price for its morning newspaper from Y100 to Y110 this month – the first increase in 16 years – but left the price of a monthly subscription unchanged.

McDonald’s pricing shift is also tentative. In an interview with the Nikkei newspaper last month, president Eiko Harada said higher prices were necessary to prepare for a staggered increase in the rate of Japan’s sales tax, which companies fear could stifle consumption. The first tax rise, from 5 per cent to 8 per cent, is due to take effect next April.

Even so, McDonald’s plans to soften the impact of its more expensive burgers by cutting the price of a small packet of fries and a box of five chicken McNuggets.

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