Japan’s annual wholesale inflation slowed in August for the eighth straight month, data showed on Wednesday, offering some relief for households and retailers hit by past sharp rises in raw material imports.
The corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, rose 3.2% in August from a year earlier, matching a median market forecast. It slowed from a revised 3.4% rise in July, and is now off a peak 10.6% year-on-year surge hit in December last year, data by the Bank of Japan (BOJ) showed.
“While crude oil prices remain high and yen falls continue, wholesale inflation is slowing … and could post a year-on-year decline in the fourth quarter,” said Toru Suehiro, an economist at Daiwa Securities.
“The price declines seen for some goods can’t be ignored” as it could affect households’ perception of future price moves, he added.
Wholesale prices driven by global commodity costs and weak yen
Rising wholesale prices, driven by last year’s surge in global commodity costs and the weak yen, have pushed up Japan’s broader consumer inflation by prodding many firms to charge households more for their goods.
According to the BOJ data, the prices of petroleum and coal products rose 11.7% in August from a year earlier, while those of non-ferrous metals jumped 18.9%. The prices of electrical machinery and equipment fell 1.8%, while those of information and communication equipment dropped 2.5%.
The yen has weakened about 6% against the dollar since the start of the year, making imports more expensive for Japanese firms. The BOJ expects the CGPI to rise 3.6% in the fiscal year ending in March 2024, and then ease to 1.1% in the following year.
BOJ maintains ultra-loose monetary policy amid supply-driven inflation
While consumer inflation has remained above the BOJ’s 2% target for more than a year, the central bank has stressed the need to keep ultra-loose monetary policy until such supply-driven rise in prices is replaced by an increase backed by domestic demand.
The BOJ has kept its short-term interest rate at -0.1% and its target for 10-year government bond yields around zero percent since 2016, as part of its massive stimulus program to revive the economy from decades of deflation.
However, some analysts have warned that prolonged low interest rates could hurt the profitability of banks and discourage lending, as well as create asset bubbles and financial imbalances.
The BOJ is expected to hold its policy steady at its next meeting on Sept. 21-22, but may revise down its economic outlook for the current fiscal year due to the impact of the COVID-19 pandemic and supply chain disruptions.
