Japan’s wholesale inflation hits 40-year high as fuel costs spike

Reuters

November 11, 2021

TOKYO (Reuters) — Japan’s wholesale inflation hit a four-decade high in October, following a similar spike in China’s factory gate prices as supply bottlenecks and rising commodity costs threatened Asian corporate profits.

The rising cost pressures, coupled with a weak yen that inflates the price of imported goods, adds to pain for the world’s third-largest economy as it emerges from the consumer slump caused by the pandemic.

“Rising costs are certainly negative for corporate profits,” said Atsushi Takeda, chief economist at Itochu Economic Research Institute. “If the economy continues to recover, firms may be able to pass on costs [to consumers] at some point,” he said.

The corporate goods price index (CGPI), which measures the prices companies charge each other for their goods and services, surged 8% in October from a year earlier, exceeding market expectations for a 7% gain, Bank of Japan data showed on Thursday.

The increase, which exceeded a revised 6.4% rise in September, was the fastest pace since comparable data became available in January 1981.

Wholesale prices rose for a range of goods including fuel, which spiked 44.5% in October from a year earlier, and timber goods, which saw prices surge 57%.

An index gauging yen-based wholesale import prices jumped a record 38% in October from a year earlier, a sign recent yen declines were pushing up already high raw material costs.

Japanese firms have so far been cautious about passing on higher costs to consumers on concern cost-sensitive households may hold back on spending. That has kept core consumer prices rising just 0.1% in September from a year earlier.

However, a slim majority of Japanese firms say they do plan to pass on or have passed on commodity costs to customers, a Reuters poll showed, a sign inflationary pressures are increasing.

That could deal a heavier blow to Japanese consumers than those in other countries given weak wage growth, heightening challenges for Prime Minister Fumio Kishida in achieving his pledge to distribute more wealth to households.

“With the burden on firms and households increasing, the rise in wholesale prices has a big negative impact on the economy,” said Toru Suehiro, an economist at Daiwa Securities.

With the House of Councillors elections expected next year, Kishida vowed to deliver a range of cash payouts to households as part of a fresh stimulus package to be compiled next week.

Commodity inflation has hit countries across the globe. China’s factory gate inflation hit a 26-year high in October, further squeezing profit margins for producers and heightening stagflation concerns.

In the United States, consumer prices posted their biggest rise in 31 years in October, amid signs that inflation could stay uncomfortably high well into 2022.

Despite the new price pressures, Japan has lagged the global shift by central banks to dial back crisis-mode policies with Bank of Japan Gov. Haruhiko Kuroda pledging to keep monetary settings ultra-loose until consumer inflation hits the elusive 2% target.