Japan's Wholesale Inflation Hits Multi-Month High, Signals Policy Shift

Japan's wholesale inflation accelerated for the third consecutive month in November as companies continued to pass on higher raw material and labor costs, according to data released Wednesday. This trend keeps pressure on the Bank of Japan (BOJ) to consider raising interest rates again.  

The corporate goods price index (CGPI), which tracks the prices businesses charge each other for goods and services, rose 3.7% year-on-year in November. This surpassed the median market forecast of 3.4% and marked the fastest annual increase since July 2023, following a 3.6% gain in October. The index reached a record high of 124.3 for the third consecutive month, driven by higher costs for food, nonferrous metals, and plastic products.  

"Inflationary pressure on domestic corporate goods prices is building," said Takeshi Minami, chief economist at Norinchukin Research Institute. "Although consumption remains sluggish, real wages are stabilizing. Given the inflationary trend, there’s a strong possibility the BOJ could raise rates in December."  

Agricultural and fishery goods prices surged 31% in November compared to the previous year, up from a 28.1% rise in October, primarily due to soaring rice costs. Meanwhile, the yen-based import price index declined by 1.2%, a slower drop than October’s 2.2%, indicating that the yen's recent recovery has not substantially lowered raw material import costs.  

The yen, which rebounded from a three-decade low of nearly 162 to the dollar in July, recently weakened to around 152 after peaking at 141 in mid-September.  

The latest data challenges the BOJ's view that inflationary pressures from raw material imports will ease, reducing the strain on households and boosting consumption and economic growth.  

Wholesale price trends are often seen as a precursor to consumer inflation, a key metric for BOJ monetary policy decisions. After ending its decade-long aggressive stimulus program in March and raising short-term interest rates to 0.25% in July, the BOJ has emphasized achieving a stable 2% inflation target.  

Governor Kazuo Ueda has indicated the BOJ could raise rates again if inflation remains consistently around 2%, supported by strong consumption and wage growth. The BOJ’s next policy decision is expected at its two-day meeting concluding on December 19.

Paraphrasing text from "Reuters" all rights reserved by the original author.