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Signs of Expanding Price Pressures Emerge as Japan’s Corporate Service Inflation Sees an Upward Climb

In Business, Finance, Economic Trends
November 30, 2023

TOKYO (CNN) – In a noteworthy development, Japan experienced a notable uptick in business-to-business service inflation throughout October, fueled by the constraints of a tight job market that propelled labor costs. Data from the Bank of Japan (BOJ) on Monday revealed that the services producer price index, a metric gauging the prices companies charge each other for services, exhibited a robust 2.3% increase in October compared to the previous year. This marked a significant acceleration from the revised 2.0% gain reported in September.

Various sectors, including information and communication, machinery repair, and worker dispatching, reported escalated fees attributable to heightened labor costs. Notably, the influx of inbound tourism contributed to a substantial 49.9% surge in hotel fees.

This surge underscores the expanding realm of price pressures, sparking speculation about the potential for a near-term departure from ultra-loose monetary policies. BOJ Governor Kazuo Ueda emphasized the imperative for inflation to shift from cost-push factors to a demand-driven surge in prices, underpinned by higher wages, for the central bank to contemplate normalizing its ultra-loose monetary policy.

The data implies a positive trajectory for Japan’s economy, indicating strides toward sustained inflation accompanied by robust wage growth. As attention intensifies on developments in service prices, deemed a vivid reflection of wage pressures faced by companies, market observers closely monitor how these dynamics will influence the central bank’s policy decisions.

Noteworthy is the sustained inflation above the BOJ’s 2% target for over a year, exerting significant pressure on companies to implement pay hikes as a strategic approach for talent retention and attraction. Indications from businesses, unions, and economists collectively suggest that the labor and cost pressures instrumental in this year’s substantial pay hikes, the largest in more than three decades, will endure into next year’s pivotal spring wage talks.

A Reuters poll conducted in October revealed that nearly two-thirds of economists project the BOJ ending its negative interest rate policy in the upcoming year.