By Max Sato
–Annual Rate +10.3% in September 2022 Remains Highest in 41 Years
–Weak Yen Continues Boosting Import Costs for Producers but at Slower Pace Amid Recent Dollar Pullback
(MaceNews) – Producer inflation in Japan popped above 10% in December as utility charges stood over 50% above year-earlier levels and firms continued passing higher costs on to customers, although the yen’s slight rebound has lowered import costs and global commodities markets have eased, data released Monday by the Bank of Japan showed.
The BOJ board is expected to revise up its medium-term inflation forecasts in its quarterly Outlook Report due Wednesday after the bank’s two-day policy meeting, but unlikely to revamp its long-held yield curve control framework until the second five-year term of Governor Haruhiko Kuroda, an advocate for a reflationary policy mix, ends on April 8.
At its last meeting on Dec. 19-20, the board decided unanimously to allow the yield on the 10-year Japanese government bonds to rise to 0.5% from 0.25% amid upward pressures arising from aggressive tightening by other major central banks, hoping to revive some of the paralyzed market functions under its yield curve control regime.
At the same time, the board voted unanimously to maintain its basic monetary easing stance, keeping its zero to slightly negative interest rate targets along the yield curve and large asset purchases in order to support economic recovery from the pandemic-triggered slump and anchor inflation around its 2% price stability target.
The key points of domestic CGPI:
- The corporate goods price index (CGPI) jumped 10.2% on the year in December, coming in well above the median economist forecast of a 9.5% rise (forecasts ranged from 9.1% to 9.9% gains). It was the 22nd consecutive gain following a 9.7% rise (revised up from 9.3%) in November and a revised 9.6% gain in October. The annual rate in September at 10.3% remains a 41-year high. It is the highest since December 1980, when the index rose 10.4% for a 14th straight month of double-digit percentage gains in the wake of the 1979 oil crisis triggered by the Iranian Revolution.
- In 2022, the domestic CGPI rose 9.7% after rising 4.6% in 2021.
- The depreciation of the yen continues exerting upward pressures on already high import costs at producer levels, which also marked the 22nd straight year-over-year rise. The increase in yen terms was 22.8% in December (a revised 28.0% in November), much higher than 8.1% (a revised 8.5% previously) in contract currencies. However, the pace in yen-based price increase continued to slow from a 49.2% surge in July 2022. The dollar depreciated 5.2% against the yen on the month in December after falling 3.2% in November and rising 2.9% in October,
BOJ data showed. - The producer costs for electric power, gas and water – the category that is also driving consumer prices higher – surged 52.3% on the year in December, with the pace of increase accelerating further from 50.5% in November. Iron and steel maintained a double-digit percentage gain but posted a slower increase of 20.9% after rising 21.9% the previous month. Those for chemicals continued slowing to a 7.2% rise from a 7.7% increase.
- The upward pressures were seen in the prices for pulp and paper (up 13.3% in December versus 12.7%% in November). The prices for non-ferrous metals rose 7.5% in December, accelerating from a 6.7% gain in November. The year-over-year rise in the prices for petroleum and coal products accelerated to 8.0% in December from 0.6% in November after slowing in recent months.
- The prices for the beverages and foods – a category with a high weighting of 144.6 out of 10,000 for the domestic CGPI – rose 7.7% on the year in December after rising 7.8% in November. Those for transport equipment (150.9 weight) rose 4.8% after a 4.7% gain the previous month.
- The prices for lumber and wood products fell 4.7% from a year earlier in December after falling 1.8% in November and edging up in October
- On the month, the domestic CGPI rose 0.5% in December after rising 0.8% in November (revised up from a 0.6% gain). It is much slower than the recent peak of a 1.6% rise hit in April 2022. The pace was slightly faster than the median economist forecast of a 0.4% gain (forecasts ranged from a 0.1% fall to a 0.5% rise). The increase was led by higher costs for utilities (electricity), fuels, farm produce (chicken eggs, polished rice, chicken) and transport equipment (chassis and body parts, forklift trucks and parts). The prices for chemicals, lumber and production machinery fell on the month.
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Contact this reporter: max@macenews.com.
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