TOKYO, Aug 25: Toyota Motor Corp. said on Monday that it will raise the prices of some passenger cars in Japan for the first time in three decades in response to skyrocketing steel costs.

The move is expected to cushion the automaker’s profits from the impact of higher material costs, but it risks depressing already weak demand as the Japanese economy teeters on the cusp of recession, analysts said.

Japan’s largest automaker said it would increase the retail price of its popular Prius hybrid by three per cent from September 1. The prices of commercial vehicles will rise by 2.0 per cent on average.

Toyota, vying with General Motors to be the world’s top automaker, said that so far it had been able to compensate for material prices by cutting costs.

“However, recent further price increases in raw materials have been larger than Toyota’s cost reduction efforts are able to offset,” it said in a statement.

Japan’s auto market is in a slump, depressed by weak consumer spending, a shrinking population and signs that younger Japanese are losing interest in cars, particularly in big cities.

“Toyota has no other choice but to raise prices to increase its profitability,” said Hirofumi Yokoi, an auto analyst at the consultancy firm CSM Asia Corp.

“Toyota will now be forced to gradually raise the prices of its other models.

The price hikes are expected to have a big impact on domestic sales at a time when demand in Japan is already weak,” he said.

It is the first time since 1974 that the auto giant has raised the domestic prices of existing passenger vehicles, rather than waiting for the launch of new or upgraded models.

The price of iron ore, a vital material to make steel, has soared in recent years due to rising demand, particularly in fast-growing China and India, forcing steelmakers to pass on the increased costs to automakers.

—AFP