Japan's inflation 'intolerable'

Press, Volume CXIV, Issue 33611, 13 August 1974, Page 13

Japan's inflation 'intolerable'

(N.Z. Press Assn —Copyright/ I PARIS. Aug. 12. Inflation in Japan has reached "unprecedented and clearly intolerable rates" and the Japanese economy must be restructured and cooled oil for a prolonged period, the Organisation for Economic Co-operation and Development said in a report released yesterday. According to the organisation — whose members include the 24 major industrialised countries in Western Europe, North America, and Asia — Japan, the world’s! largest commodity importer,| has suffered considerably from rising import prices and world-wide shortages. In addition, the fear of soaring inflation has prompted consumers to buy now. Another factor is that supply cannot keep up with the shift in domestic demand toward personal consumption, housing, and public investment.

The organisation said that the temporary cut in oil supplies during the October embargo reduced the amount of oil available to major industries, resulting in production cuts during the first quarter of 1974.

Increased oil prices have, caused substantial deterioration in Japan’s balance-of-payments deficit, the report said. The deficit went from an annual rate of SUS2SOOm in the second half of 1973 to SUSIO,OOOm in the first quarter of 1974. Over the short term, the organisation recommends that Japan continue selective price controls, and “introduce only gradually the inevitable large increases in public tariffs.”

The report also suggests Government action to channel investment away from less productive areas. For the medium term, the report says “high investment rates may be necessary for the restructuring of industry.” The organisation noted that Japan was still in a relatively strong position to attract funds from abroad. The report noted that while all organisation mem-

bers faced inflation problems, Japan's was more serious than most. This is in sharp contrast to Japan's relatively good performance during the IMO*. The average year-to-year increase m consumer prices averaged 11.7 per cent in 1973, but rose to a yearly rate of 24.5 per cent in the first quarter of 1974 The increase in wholesale prices was even more strik mg. the rate going from an annual increase of less than 1 per cent in the 1961 1971 period to 15.9 per cent in 1973 and 35.5 per cent in th. first quarter of 1974 The increase in the price of imported raw materials - particularly' oil — placed key, though not exc)usiv< role in the extraordina wholesale price increase the report said.