Japan’s wholesale inflation has experienced a significant slowdown, dropping below 1 per cent for the first time in over two and a half years, indicating a departure from the cost-push pressures that had been propelling prices upward across various sectors, as reported by Reuters on Monday.
According to Takeshi Minami, the Chief Economist at Norinchukin Research Institute, “Wholesale inflation seems to have cooled as past declines in raw material and energy costs filter through domestic business-to-business prices.”
This deceleration aligns with the Bank of Japan’s expectations, prompting questions about whether increased wages and household spending will generate a demand-driven increase in consumer prices.
The Corporate Goods Price Index (CGPI), reflecting the prices companies charge each other for goods and services, showed a 0.8 per cent rise in October from a year earlier, slightly below the median market forecast of a 0.9 per cent gain. This marked the 10th consecutive month of slowing wholesale inflation, with the year-on-year growth rate falling below 1 per cent for the first time since February 2021.
The data highlights a cooling trend attributed to declining prices for wood, chemical, and steel products, underscoring the impact of diminishing global commodity costs.
Takeshi Minami anticipates that government subsidies aimed at curbing gasoline and utility bills might lead to a slowdown in consumer inflation by the close of the fiscal year ending March 2024. He stated, “The pace of the slowdown in consumer inflation will be modest as labor shortages and higher wages will underpin service prices,” expecting a gradual deceleration.
The surge in wholesale inflation had prompted Japanese firms to pass on higher costs to households, leading the Bank of Japan (BOJ) to revise its inflation forecasts. The BOJ, anticipating a dissipation of cost-push inflation, emphasizes the need for price rises driven by robust domestic demand to consider ending ultra-low interest rates.
BOJ Governor Kazuo Ueda indicated progress toward sustainably achieving the bank’s 2 per cent target, signaling conditions for exiting ultra-easy policy were gradually falling into place.
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