CORRECTED-Japan supermarkets raised prices as sales tax hit-index

Sat Apr 5, 2014 6:29am EDT

(Corrects April 4 story, paragraph 2 to reflect that prices excluded sales-tax effect. Changes date in dateline.)

TOKYO, April 5 (Reuters) - Japanese supermarkets raised prices on top of a new sales tax this week, data showed, in the first sign that retailers feel they have the pricing power to withstand the levy.

Prices at 300 supermarkets nationwide were up 0.9 percent from year-earlier levels excluding the tax-hike effect on Tuesday, the day the tax hike took effect, and up 1.5 percent on Wednesday, according to the UTokyo Daily Price Index, a gauge maintained by University of Tokyo Professor Tsutomu Watanabe.

On Monday, the day before the sales tax rate rose to 8 percent from 5 percent, supermarket prices were down 1.0 percent on year, the index showed on Friday.

The rise over the first two days shows that the tax increase "is steadily being passed along" to consumers, Watanabe told Reuters.

The index, based on point-of-sales data for as many as 200,000 food items and daily necessities, offers the first broad indication of how businesses are reacting to the tax hike amid concerns that it could derail the recovery in the world's third-biggest economy.

Prime Minister Shinzo Abe raised the tax for the first time since 1997 in a bid to curb Japan's runaway public debt, which at more than twice the nation's annual GDP is the biggest in the industrial world. The increase comes, however, just as the economy has been slowing.

Abe has been struggling to shake consumers and companies out of a deflationary mindset in an attempt to decisively pull Japan out of 15 years of falling prices and tepid growth. The Bank of Japan last year unleashed unprecedented monetary easing aimed at generating 2 percent inflation over two years. (Reporting by Yoshifumi Takemoto; Writing by William Mallard; Editing by Edmund Klamann)