May15,2014 17:00 JST

Consumer sentiment continued to deteriorate in April

The consumer confidence index continued to deteriorate in April, down to 37.0 from 37.5 in March. Through the course of 2012 to 2013, the index showed a consistent improvement from 39.9 in December 2012 to 45.4 in September 2013. However, after October, around the time Prime Minister Abe decided on the VAT hike, a deterioration in the sentiment started and the index has now deteriorated back to the level before Abenomics started.

It is rather puzzling to see that labor market components of the index, such as "Income growth” and “Employment”, have been deteriorating, as we expect these labor market condition to have actually improved between October 2013 to March 2014. Probably, it is the general uncertainty regarding the future that is hurting the consumers' sentiment.

Consumer confidence tends to lead consumption trend and it is one of leading indicators adopted by the Cabinet Office for their official composite leading indicator. While it would be premature to expect a recovery in the index in April, just after the VAT has risen, we will find it concerning if the index continues to deteriorate to May.

In the same report, price expectation of consumers is also published. Percentage of consumers who expect that price is going to rise was 84.8% in April, fell by 4.9 percent point from previous month but well above the historical average even after the VAT hike. Combined with the decline of “Income growth”, this rise of inflation expectation may harm the consumer confidence through a expectation of declining real income.

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