Wholesale prices in Japan increasing at fastest rate in 13 years thanks to soaring commodities

Japan’s wholesale prices rose at their fastest annual pace in 13 years, reflecting rising commodity costs, data showed on Thursday, a sign that global inflationary pressures are pinching already struggling businesses amid the coronavirus pandemic.

With companies seen as slow to pass the higher costs on to households, rising wholesale inflation should not cause the Bank of Japan to withdraw its massive stimulus anytime soon, analysts say.

“We are seeing signs of cost-driven inflation emerging. If this is not accompanied by an increase in wages, we could see the purchasing power of Japanese consumers decline,” said Mari Iwashita, chief economist. markets at Daiwa Securities.

The Business Goods Price Index (CGPI), which measures the prices that businesses charge for their goods, rose 4.9% in May from a year earlier, data from the Bank of Japan, more than a median market forecast for an increase of 4.5%. .

It followed a 3.8% gain in April and was the biggest annual increase since September 2008, when a global spike in food and raw material costs pushed up a range of prices in Japan.

China has also seen ex-factory prices rise at their fastest annual rate in more than 12 years, underscoring the delicate balance policymakers face in sustaining their economies while keeping unwanted inflationary pressures at bay. Read more

Rising raw material costs are particularly damaging for Japan, where the state of emergency in restrictions to tackle the pandemic is chilling consumption and making it difficult for retailers to charge households more for their products.

Underlying consumer prices – the key benchmark the BOJ examines in setting monetary policy – fell 0.1% in April year-on-year, marking the ninth consecutive month of decline. Read more

“Rising commodity prices reflecting the global economic recovery are pushing up wholesale prices for a wide range of products,” Shigeru Shimizu, head of the BOJ’s price statistics division, told a briefing on wholesale price data in Japan.

“The data shows that companies are starting to pass on higher costs, although the increase in wholesale prices is due more to external factors than to domestic demand,” he said.

Oil and coal prices jumped 53.5% in May, while non-ferrous metal prices rose 41.6% as robust US and Chinese demand boosted commodity costs, data shows of the BOJ.

Lumber and lumber prices also rose 9.7%, reflecting a shortage of raw materials and growing demand around the world, Shimizu said.

Investors are increasingly concerned that the pandemic-induced stimulus measures will raise inflation and force central banks to tighten policy, which could dampen the recovery. Read more

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