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Japan To Hike Utility Prices By 14-19% As Inflation Surges In All The Wrong Places

Tyler Durden's picture




 

First it was gas prices, then it was food prices, and now it is the turn of basic utilities to see costs surge by double digits. Dow Jones reports that "Japanese utilities, forced to idle their nuclear power plants over the past two years and facing higher fuel costs due to a weak yen, are now looking to push through double-digit rate hikes for their commercial customers." This means less disposable income, less corporate profits, less monetary velocity, less growth and ultimately less "inflation" in other things such as the much desired stock market, which was supposed to be the wealth effect offset to all staples price increases. At least on paper. Of course we explained on various occasions, most recently here, why in Japan a US-style of wealth effect price substitution would never work. Surely nobody could possibly see this coming - "The action comes at a bad time for some Japanese companies that were hoping the fall in the yen and much-trumpeted efforts by the government to turn round the economy would help improve their prospects." Ah hope - the only strategy left.

More on the mainstream press catching up with what we said over two months ago:

While the government has raised some concerns about the raising of power rates, the move seems inevitable given the prior deregulation of electricity prices.

 

Eight of the nation's nine utilities with nuclear power plants have been posting losses due to the higher cost of buying imported fossil fuels in the wake of the Fukushima nuclear disaster and the subsequent shutting down of reactors amid safety concerns.

And the biggest catalyst for what is set to be a major inflationary spike, but not in discretionary prices, but in staples - the same one every other time: cash runs out.

The utilities managed to keep prices at low levels over the past two years despite the higher fuels costs by drawing on cash reserves. But some of them are now running low on reserves, and see price hikes as the only way to avoid possible bankruptcy.

 

On paper, the government has no power to intervene in pricing issues between corporate customers and utilities because of the liberalization of these markets. But that price deregulation left the utilities in full control of the power grid, ultimately stymieing attempts by outside firms to grab a larger share of the market.

Would a wholesale bankruptcy of the entire Japanese energy sector be really that bad? It would simply mean the wholesale nationalization of the industry, from where Japan could simply proceed to subsidize everything. Naturally this would simply be the first step to global trade warfare as neighboring countries saw this as plain old subsidies, which they would be. But Japan will cross that bridge when it gets to it.

In the meantime, the Japanese consumers who are so happy with Abe are about to be much, much poorer:

Japan paid Y24 trillion ($248 billion) for imported fossil fuels including crude oil, natural gas and coal in 2012, up 10% on year, compared with Y21.8 trillion in 2011, itself a 25% increase, according to the Ministry of Finance.

 

Most of Japan's corporate customers have no choice but to accept the proposed rate hikes, because of the virtual monopoly enjoyed by regional utilities despite a nominal liberalization of the sector in the mid-1990s.

 

Tokyo Electric Power Co. , the owner and operator of the stricken Fukushima Daiichi nuclear power plant, announced in early 2012 an average 15% rate hike, as its bill for fossil fuels swelled to Y3.26 trillion, a rise of 50% from pre-Fukushima levels. Later in November, it said that compensation for damage caused by the nuclear accident in March 2011 and the cost of decontamination work around the Fukushima area may each top Y5 trillion.

 

Four other major utilities, Kansai Electric Power Co. , Kyushu Electric Power Co. and Shikoku Electric Power Co. in western Japan and Tohoku Electric Power Co. in northern Japan, have all announced plans to raise rates for corporate customers by 14% to 19%.

To the government this is merely an unintended consequence which they never could have foreseen. Sadly, everyone else could.

The government has belatedly acknowledged the importance of having a neutral grid operation not tied to the interests of the utilities and in February formulated a plan to split these nine power utilities into grid operators, power generators and power retailers. Under the plan, the separation of grid operation will take place as early as 2018.

The only hope for Japan, absent some magical arrangement whereby the US can export billions in BTUs of LNG well below cost to Japan, something Abe is desperately praying for, is the restart its nuclear power plant.

Japan's electricity prices will likely rise by 10-20% this year, unless at least a few of the 48 currently idled reactors resume operations, said Atsushi Suzuki, a senior consultant who monitors the energy industry at Mitsubishi Research Institute. The impact of electricity rate hikes on the economy is difficult to calculate because it varies among industries, Mr. Suzuki said.

 

"In the long term, we may give up nuclear power, but for now, there's no alternative but to restart safe reactors," said Yoshimitsu Kobayashi, president of Mitsubishi Chemical Holdings Corp. (4188.TO), a major electricity user.

 

Putting currently idled plants back on line offers an inexpensive way to generate power in the short-term since a large part of their costs have already been amortized, said Takumi Fujinami, senior researcher at the Japan Research Institute.

 

But given the difficult political environment over such restarts, he says that power conservation is a more realistic course of action in the long run.

In the aftermath of Fukushima we wish Abe the best of luck with this approach: it is far more likely he premiership will be cut well short on soaring energy, food and gas prices, before the locals are willing to go through another Fukushima.

Which then begs the real question: how long until Abe's government mandate is cut short by populist anger due to out of control inflation in staples and unrest?

We give him 4-6 months.

 

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Tue, 03/12/2013 - 09:57 | 3322171 Cursive
Cursive's picture

Utilities are part of the "volatile" energy inputs, so this doesn't affect "core" prices and should be ignored.  Meanwhile, hedonic adjustments for Windows 8 should be trumpeted!  /sarc

Tue, 03/12/2013 - 10:04 | 3322186 TruthInSunshine
TruthInSunshine's picture

Krugman just tweeted that this is:

@Dr.Paul"When Mars Attacks" Krugman

 

"This is a tepid measure towards stimulating consumption & the economy; rate hikes of 200% to 400% would have been far better."

Tue, 03/12/2013 - 10:14 | 3322228 CH1
CH1's picture

Yes, Bitcoin is from the Devil and will bring all who touch it to hell. You should hold to government paper and rejoice at Bitcoin's every pain.... and leave the rest of us alone.

Tue, 03/12/2013 - 10:18 | 3322231 Cursive
Cursive's picture

@CH1

If you don't like it, just ignore the post.  Instead, like a devoted member of a Jim Jones cult, you have to come to the defense of this ponzi scheme.  Your bitcoin problems are in the mirror.

 

 

"It's essential for all miners to enforce exactly the same rules about what counts as a valid block. If a client announces a block that half the network accepts and the other half rejects, the result could be a fork in the network. Different nodes could disagree about which transactions have occurred, potentially producing chaos.

That's what happened on Monday evening. A block was produced that the latest version of the Bitcoin software, version 0.8, recognized as valid but that nodes still running version 0.7 or earlier rejected."

Tue, 03/12/2013 - 10:30 | 3322275 ParkAveFlasher
ParkAveFlasher's picture

Fork bitcoin!

But to be fair...

It does show efficacy as a coded record of account between two parties in agreeable terms.  Good luck finding parties on agreeable terms outside of the hempy insularity of the west coast tech hive.

I would be more for BTC if it were, say, used by ZHers to tell each other how much gold they dumped overboard and the precise GPS location of said dumps. 

IMHO You BTC guys are positioning your product all wrong.  You might like to trade cyphers, and value cyphers highly, but again, your community is the victim of insularity, and you'd have to torture my coin guy if you wanted to know how much I bought, and that's just about secure enough as I need.

Tue, 03/12/2013 - 13:51 | 3323050 akak
akak's picture

LOL!

+1 for "the hempy insularity of the west coast tech hive."

I truly feel sorry for the isolated, self-imprisoned geeks who breathe, eat and live inside the cyber world, obsessed with the shallow and trivial minutia of e-gadgetry.

Tue, 03/12/2013 - 11:02 | 3322370 Temporalist
Temporalist's picture

Seriously CH1 are you now against sharing information?  Is this not the truth? 

Tue, 03/12/2013 - 12:48 | 3322820 Jack Burton
Jack Burton's picture

Cursive. Brilliant! Just so, that's how the system works. A bloody hoax!

Tue, 03/12/2013 - 09:59 | 3322172 Abraxas
Abraxas's picture

Japanese have been conditioned the same way we are. No public anger, no protests and certainly no revolution.

Tue, 03/12/2013 - 10:07 | 3322200 Tsar Pointless
Tsar Pointless's picture

You have that backward. The Japanese were conditioned first.

I think we've been turned Japanese. I really think so.

Tue, 03/12/2013 - 10:18 | 3322235 kito
kito's picture

No tsar we are not Japanese.......Americans are too fattened up on fast food, drugged up on pharma and zoned out on reality tv to comprehend their plight in life......hardly Japanese......

Tue, 03/12/2013 - 10:30 | 3322278 Tsar Pointless
Tsar Pointless's picture

Okay, so we're not identical twins, but we may as well be fraternal twins.

Tue, 03/12/2013 - 10:35 | 3322302 espirit
espirit's picture

Ah, burning buildings will keep you warm at night when one can no longer afford "utilities".

Tue, 03/12/2013 - 11:23 | 3322473 duo
duo's picture

Separating the utilities into generators, grid operators, and retailers...that worked great in TX.  Our rates tripled since "deregulation".  The retailers sit in a dark room and collude on prices, the generators shut down extra capacity resulting in blackouts, and the lobbyists collect payola from all three.

Tue, 03/12/2013 - 12:44 | 3322642 akak
akak's picture

There is no inflation in Japanese utility prices.

Utility costumers merely need to learn how to shop for bargains.

Tue, 03/12/2013 - 12:39 | 3322791 Son of Loki
Son of Loki's picture

Has to be a real b*tch to be poor in japan.

Tue, 03/12/2013 - 13:52 | 3323056 zerozulu
zerozulu's picture

Nothing is perfect. They are ruined because they are uni-cultural and we are ruined because we are multicultural.

Tue, 03/12/2013 - 10:01 | 3322177 The Invisible Foot
The Invisible Foot's picture

Hope we don't go through 20 fucking years of depression like they are.

Tue, 03/12/2013 - 10:08 | 3322203 Cookie
Cookie's picture

It will be much worse

Tue, 03/12/2013 - 10:09 | 3322206 Cursive
Cursive's picture

@The Invisible Foot

We're in at least year 5, but you could probably say it really started in 2001.  Don't see it abating anytime this decade.  When Jim Cramar is shived in prison, maybe that will be the bottom for the economy.

Tue, 03/12/2013 - 10:12 | 3322219 Dr. Engali
Dr. Engali's picture

Actually we are in year 42. We haven't had rising real wages since Nixon took us off the gold standard.

Tue, 03/12/2013 - 10:19 | 3322242 Cursive
Cursive's picture

@Dr. Engali

Good point.  I stand corrected.

Tue, 03/12/2013 - 10:38 | 3322313 espirit
espirit's picture

Cramer being somebody's bitch?  Too f'ing ugly from the front.

Tue, 03/12/2013 - 11:26 | 3322483 Poundsand
Poundsand's picture

In 1971, minimum wage was $1.60/hour.  With gold at $40.62/ounce that year, it took just over three days worth of work to earn 1 oz. of gold.

Today, minimum wage is $7.25/hour and gold is $1593/oz.  That means it takes just over a five weeks to earn the same oz of gold. 

Worse, that 1971 yearly wage would gross $3,200.00 or just under 79 oz of gold, and in todays terms you would have to earn at least $125,494 to buy the same amount of gold.

Year 42 sounds pretty good to me.

Tue, 03/12/2013 - 10:11 | 3322217 adr
adr's picture

we'd be lucky to only get 20 years. Is there anthing you can see going on in the USA that makes you think our depression will end any time soon?

Tue, 03/12/2013 - 10:03 | 3322182 fudge
fudge's picture

Japan .. paddlin' up shit creek in a barbed wire canoe

*snicker

Tue, 03/12/2013 - 10:13 | 3322225 ejmoosa
ejmoosa's picture

And yet the answer is right there.  Remove the rules and regulations in Japan that are killing it.  Invite any people and any businesses to come there and compete...

Tue, 03/12/2013 - 10:21 | 3322248 oleander garch
oleander garch's picture

There was a competition in Japan two generations ago.  These are the select few who won pulling the strings two generations later.

Japan wanted inflation for the masses.  They got it.

Tue, 03/12/2013 - 10:06 | 3322193 DaveyJones
DaveyJones's picture

as opposed to all those right places

Tue, 03/12/2013 - 10:07 | 3322194 timbo_em
timbo_em's picture

Easy fix: print moar!

Tue, 03/12/2013 - 10:07 | 3322199 madcows
madcows's picture

well, just put in place price controls.  that will fix it, right.

Tue, 03/12/2013 - 10:08 | 3322204 SilverMaples
SilverMaples's picture

An the train is approaching next station ...

Currency debasement -> Commodity Price Fixing -> Forced Nationalisations -> Totalitarianism

 

 

Tue, 03/12/2013 - 10:10 | 3322210 Dr. Engali
Dr. Engali's picture

Of course the blame for rising prices will be misdirected instead of where it should lie...at the feet of the central bank.

Tue, 03/12/2013 - 10:14 | 3322226 sangell
sangell's picture

NHK announced yesterday the first successful attempt to extract methane hydrate from the sea floor. Commercial production in 4 years. If they can do this the world is going to be awash in gas.

Tue, 03/12/2013 - 10:32 | 3322288 fudge
fudge's picture

anyone got a match ?

Tue, 03/12/2013 - 10:17 | 3322233 Rainman
Rainman's picture

Diminished resources leads to exploitive Imperialism. Sooner or later, they'll start building more offensive weapons...again. History rhyming ... again.

Tue, 03/12/2013 - 10:19 | 3322238 adr
adr's picture

Well in three years my water rates have tripled, forced by EPA mandate. My electric rates are up 15%. Property taxes are up 10%, even though my home has lost 20% of its value.

So I'd say Japan is following the USA nicely after we decided to follow Japan. The endless full retard cycle.

Tue, 03/12/2013 - 10:22 | 3322253 Quinvarius
Quinvarius's picture

Looks like Peter Schiff was right again.

Tue, 03/12/2013 - 10:39 | 3322295 ParkAveFlasher
ParkAveFlasher's picture

fox news middle-aged English-accent (sic) argument/disparagement-mouth-unit to Schiff: "But Petah, what inflation in Japan?  There is no inflation!"

[about two weeks ago].

Not many people get Schiff because he "slips" sometimes by speaking in the present tense about things that have not yet happened.  Such is the firmness of his calculations.

Tue, 03/12/2013 - 11:04 | 3322377 Charles Nelson ...
Charles Nelson Reilly's picture

You mean Stu Varney?  He's about as useful to an economic discussion as a human being having a second butthole to shit out of.

Tue, 03/12/2013 - 11:41 | 3322516 ParkAveFlasher
ParkAveFlasher's picture

"Stu Varney" ... sounds like a name for an auxiliary a-hole.

Tue, 03/12/2013 - 10:22 | 3322254 Herdee
Herdee's picture

I see that Kyle Bass is still holding strong.Let's throw another act of randomness at Japan to see what happens.

Tue, 03/12/2013 - 10:31 | 3322285 Sutton
Sutton's picture

It's transitory.

Hidecki Bernanke

Tue, 03/12/2013 - 10:32 | 3322291 rsnoble
rsnoble's picture

My electric bill here in the US averages $350 month.  Of course im not living in a cottage or closet sized apartment.

Tue, 03/12/2013 - 10:33 | 3322296 BigInJapan
BigInJapan's picture

All aboard the Nippon Express! Next stop, Commie Station.

Tue, 03/12/2013 - 10:39 | 3322303 suteibu
suteibu's picture

Dow Jones is sooo US.  The Japanese media is much more optimistic.  From Nikkei.com:

Japan's consumer confidence index for February rose 1 point from January to a seasonally adjusted 44.3, marking the second straight monthly rise and the highest point since June 2007, when the index hit 44.4.

Growing hopes the Japanese economy will recover as the yen weakens, along with a bullish stock market, left consumers more optimistic last month.

The government left its overall assessment unchanged, saying consumers' purchasing appetite is recovering.

As for Abe, he's got the whole situation covered.

In February, all of the four categories that make up the index -- overall livelihood, income growth, employment and willingness to buy durable goods -- improved, with the income growth index rising 0.9% to 41.6.

The Cabinet Office said consumer sentiment improved on expectations corporate earnings will grow, thanks to the weak yen. Consumer confidence got a further lift because Prime Minister Shinzo Abe on Feb. 12 urged business organizations, including the lobby group Keidanren, to raise salaries.

A total of 6,720 households nationwide were surveyed on Feb. 15, with 5,032 households, or 74.9% offering valid responses.

So, who are the Japanese going to believe, the government or their lying eyes?

Tue, 03/12/2013 - 10:38 | 3322312 epwpixieq-1
epwpixieq-1's picture

And of course, all this could have been avoided, only if SOMEONE had the guts to DO the right investment in LFTR ( http://en.wikipedia.org/wiki/Liquid_fluoride_thorium_reactor ), a wishful thinking in such a corrupt and disastrously inefficient and manipulated, investment-resource-misallocation economic system.

But hey, of course, no one ( group of people) can be accountable for that, until some(one) will, in most disturbing way. For one is certain, nature and live itself does not tolerate inefficiencies, even on a (relevantly) short timescale.

Tue, 03/12/2013 - 10:46 | 3322324 espirit
espirit's picture

Much like the internal combustion engine, it need to phase out some thirty years ago.

Basic principle of nuke is to boil water? Jees...and we can't even do that well.

Tue, 03/12/2013 - 10:42 | 3322319 secret_sam
secret_sam's picture

The Japanese are a pretty cohesive society.  They'll endure a lot before there's any *real* trouble.

Doesn't anyone remember how they performed in WWII?

Tue, 03/12/2013 - 10:45 | 3322323 lindaamick
lindaamick's picture

No worries.  As more and more people become radiated in Japan, expenses will be cut and worker shortages will provide jobs for the rest.

No more expenses associated to raising children.

Cheaper housing due to reductions in demand.

It's all good.  (sarc)

Tue, 03/12/2013 - 11:03 | 3322371 yogibear
yogibear's picture

Same will occur in the US as inflation surges and wages declline in relation to inflation.

Consumers will get crushed with stagflation.  Unlike Japan, people in the US are already living on credit cards and massive credit.

 

It will continue putting more and more muppets in the poor house.

 

How's that working out Bernanke, Evans, Dudley and Yellen?

 

Tue, 03/12/2013 - 11:07 | 3322392 Charles Nelson ...
Charles Nelson Reilly's picture

so I should stop shorting the Yen (YCS)?

Tue, 03/12/2013 - 11:22 | 3322464 the grateful un...
the grateful unemployed's picture

this is coming to america, where the majority opposes nuclear energy.  japan and the US are running similar policies to offset long term deflationary problems. part of the problem is a secular drop in demand, america no longer manufactures, and you think gee, less demand lower prices but that isn't how economies of scale work. an electric plant costs as much to run if one person uses it or ten people, so if only one chooses to use electricity, the utility has to make him pay all the costs. think what happens when 9 out of 10 go solar. now put that on a variable scale, less demand equals higher prices for electricty (which now has nearly nothing to do with the cost of energy to make the electricty but the cost of running the infrastucture, labor, technology, etc) this is also a catalyst in the next gold bull market, not price inflation due to limited supply, but the added cost of extracting and processing, shipping and certification will make gold more expensive. the other bit of sand in the gears is that some people can afford solar for instance, while others can't. then sometimes the new technology doesn't roll out fast enough or cheaply enough to replace the old technology.during the 1930s they stopped selling ice but not everyone could afford an refrigerator or had electricity.. then there was a great depression. hmmmm

Tue, 03/12/2013 - 11:28 | 3322490 Lordflin
Lordflin's picture

World wide monetary debasement as a plan to increase exports and revive economies is clearly flawed. On the other hand... as a scheme to make a few people filthy rich it has been a brilliant success...

Tue, 03/12/2013 - 12:32 | 3322759 JamesBond
JamesBond's picture

It is the Japanese husband that will suffer the most.  His wife will simply cut down on heating and cooling the home/apartment.  

Put another blanket on the futon for the time being and open the windows in a few months.

Japanese women have politicians by their balls; always have....

 

jb

Tue, 03/12/2013 - 12:46 | 3322814 NoWayJose
NoWayJose's picture

Coming to the 99% in Amerika soon enough. Prep now, because it will not be long before the world figures out that each year the Fed is printing an extra trillion extra dollars and Congress is spending a triliion dollars it does not have.

Tue, 03/12/2013 - 13:34 | 3322988 oak
oak's picture

abe does not know that he is a big trouble maker to everyone yet.

http://atimes.com/atimes/Japan/JAP-01-120313.html

Tue, 03/12/2013 - 16:49 | 3323790 Nassim
Nassim's picture

A big part of Japan can live largely on solar power. The imported stuff can be used at night and for the north of the country and the south can ship electricity up north by day. In Australia, for domestic use, the all-in cost for photovoltaic works out at around $2 per Watt - dirt cheap.

Sadly, the monoliths which generate, distribute and retail electricity are dead against it.

Yesterday, in Victoria, electricity demand broke a record. It was actually a lot higher than this article reported, because of domestic PV.

http://www.theage.com.au/victoria/big-demand-for-paramedics-and-fans-201...

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