Japan’s wholesale inflation surged for a third consecutive month in November, as businesses continued to transfer escalating raw material and labor expenses to consumers. This persistent inflationary pressure intensifies the likelihood of another interest rate adjustment by the Bank of Japan (BOJ). The upcoming two-day BOJ policy meeting, concluding on December 19th, will be closely watched by market participants for potential rate hike signals.
The corporate goods price index (CGPI), a measure of inter-company pricing for goods and services, registered a 3.7% year-on-year increase in November, exceeding market expectations of a 3.4% rise. This represents the most rapid annual growth rate since July 2023, following a 3.6% increase in October.
The sustained inflationary trend stems primarily from elevated costs for food, nonferrous metals, and plastic products, reflecting broader commodity and wage pressures. The CGPI reached 124.3, marking a new record high for the third month in a row.
Takeshi Minami, chief economist at Norinchukin Research Institute, noted a resurgence in domestic corporate goods price inflation. He highlighted that with real wages stabilizing and inflationary pressures building, a December rate hike by the BOJ is increasingly probable.
Agricultural and fishery product prices saw a dramatic 31% year-on-year surge in November, up from 28.1% in October. This spike is largely attributed to the escalating price of rice.
Despite a recent recovery from a three-decade low against the dollar, the yen’s weakening to around 152 from a mid-September high of approximately 141 indicates that the currency’s rebound has not sufficiently mitigated the cost of raw material imports. The yen-based import price index declined by 1.2% in November, a slower pace compared to the 2.2% drop in October.
This development challenges the BOJ’s anticipation that inflationary pressure from raw material imports will subside, leading to reduced household burdens, increased consumption, and broader economic growth. Wholesale price data serves as a key indicator of consumer inflation, a critical factor in the central bank’s monetary policy decisions.
The BOJ concluded its decade-long, extensive stimulus program in March and implemented a short-term interest rate increase to 0.25% in July, based on the assessment that Japan was on track to sustainably achieve its 2% inflation target.
BOJ Governor Kazuo Ueda has indicated a willingness to further raise rates in the near future if the bank gains greater confidence in sustained inflation around 2%, driven by robust consumption and wage growth. This November inflation data reinforces the urgency for the BOJ to address mounting inflationary pressures and potentially recalibrate its monetary policy stance.
