Wholesale inflation in Japan is slowing sharply as cost pressures ease

A woman looks at items at a store in Tokyo, Japan, March 24, 2023. REUTERS/Androniki Christodoulou/File Photo Obtaining licensing rights

  • October Corporate Goods Price Index rose 0.8% y/y compared to actual expectations +0.9%
  • Wholesale inflation slows to below 1% for the first time since February 2021
  • The focus turns to whether demand-driven inflation takes over

TOKYO (Reuters) – Wholesale price inflation in Japan slowed below 1 percent for the first time in just over two-and-a-half years in October, data showed on Monday, a sign that cost pressures are pushing prices higher. A wide range of goods began to disappear.

Analysts say the slowdown in commodity-led inflation is in line with the Bank of Japan’s forecast, and sheds light on whether wages and household spending will increase enough to generate a demand-driven rise in consumer prices.

“Wholesale inflation appears to have slowed as previous declines in raw material and energy costs seep into domestic prices among businesses,” said Takeshi Minami, chief economist at Norinchukin Research Institute.

He added that the impact of government support in curbing gasoline and utility bills is likely to slow consumer price inflation by the end of the fiscal year ending in March 2024.

“But the pace of the slowdown in consumer inflation will be modest as labor shortages and rising wages will support service prices,” he said.

The Corporate Goods Price Index (CGPI), which measures the prices companies charge each other for their goods and services, rose 0.8% in October from a year earlier, roughly in line with the average market expectation for a 0.9% increase but down significantly from 2.2%. % increase in September.

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The data showed that this represented the tenth consecutive month in which wholesale inflation slowed, with the year-on-year growth rate falling below 1% for the first time since February 2021.

The data showed that the slowdown was due to lower prices for timber, chemicals and steel products, highlighting the impact of lower global commodity costs.

The sharp rise in wholesale inflation has prompted many Japanese companies to pass on higher costs to households, a trend that prompted the Bank of Japan to raise its inflation forecasts in its quarterly outlook issued in October.

The Bank of Japan said such cost-driven inflation would dissipate and should be replaced by higher prices driven more by strong domestic demand until it can consider ending ultra-low interest rates.

Bank of Japan Governor Kazuo Ueda said Japan is making progress toward meeting the bank’s 2% target sustainably, suggesting conditions for exiting ultra-loose policy are gradually easing.

Reporting by Lika Kihara, Editing by Shri Navaratnam and Sam Holmes

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