—Producer Inflation Has Slowed from Recent Peak of 10.6% in December 2022 Amid Relatively Tame Commodities Markets
–Producer Prices Up 0.2% M/M on Non-Ferrous Metals, Farm Produce, Utilities
By Max Sato
(MaceNews) – Producer prices in Japan rose 0.8% on the year in March, as expected, accelerating slightly from an upwardly revised 0.7% rise in February and the recent low of a 0.3% gain in January, as the base-year effect of government subsidies for utilities had waned and the weak yen gradually pushied up import costs after earlier declines, data released Wednesday by the Bank of Japan showed.
It was the 37th straight year-on-year increase but the pace of increase has slowed from a recent peak of 10.6% reached in December 2022. The downward pressure is still coming from utilities, which fell 19.1% on year in March versus a 21.5% drop in February, and the prices for lumber, steel and chemicals remained below year-earlier levels, albeit falling at a slower pace.
On the month, the corporate goods price index (CGPI) rose 0.2%, lower than the median forecast of a 0.4% rise, after rising 0.2% in February. It has eased from the recent peak of a 1.6% rise hit in April 2022. The increase in March was led by non-ferrous metals, farm produce, utilities and textile products while fuel prices edged up after a recent drop.
In the fiscal year that ended last month, the CGPI rose a modest 2.3% on the year after surging 9.5% in fiscal 2022 and 7.1% in fiscal 2021.
The CGPI’s import price index in yen terms rose 1.4% on year in March, the highest since the 9.4% rise in March 2023, after posting its first year-over-year increase in 11 months in February with a 0.2% rise in the face of the lingering weakness of the yen. In contract currencies, the index dropped 6.9% after falling 8.3%. The yen-based import cost increase peaked at 49.5% in July 2022.
The yen depreciated further to an average ¥149.63 to the dollar in March during Tokyo trading hours from ¥146.42 in February as Bank of Japan officials repeatedly said financial conditions were likely to remain accommodative after the bank’s first rate hike in 17 years in March. The yen’s relative strength in a range of ¥130 to ¥134 in the first four months of 2023 helped lower import costs, which slumped as much as 14.7% in yen terms last July.
In the latest development, the dollar rose to a nearly 34-year high of ¥151.97 on March 27 as the return on holding yen assets remains super-low. The yen’s weakness continues despite warning from Japanese officials that they are watching the currency market “with a high sense of urgency,” suggesting they are prepared to intervene. Previously, the dollar briefly surged to a 32-year high of ¥151.94 in October 2022 but Japan’s second wave of massive yen-buying forex intervention pushed it down to a low of ¥143.55 in the same month.
Among the key factors still taming producer prices, the costs for electric power, gas and water for businesses fell 19.1% on the year in February for the ninth straight drop but the pace of decline decelerated further from 21.5% in February.
The prices for lumber and wood products fell 6.9% from a year earlier for the 16th straight drop but the decrease also moderated further from a 9.6% drop the previous month. Iron and steel prices fell 3.0% after slipping 3.2% the previous month. Those for chemicals edged down 0.1% following a 0.3% drop.
The prices for foods and beverages — a category with a high weighting of 144.6 out of 10,000 for the domestic CGPI — rose 3.7% on the year in March, slowing from a 4.1% rise in February. Those for transport equipment (150.9 weight) rose 2.1% after a 2.3% gain the previous month.
The prices for non-ferrous metals rose 5.7% on year in for the ninth straight increase after a 3.6% rise. Those for petroleum and coal products also posted the ninth increase in a row, up 5.3%, following a 7.1% rise. The prices for ceramic, stone and clay products eased further to a 9.8% rise on year from a 10.6% gain the previous month. Metal product prices were up 2.8%, after rising 3.6%.
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