—Producer Inflation Has Slowed from Recent Peak of +10.6% in December 2022
–Producer Prices +0.2% M/M on Utilities, Non-Ferrous Metals; Fuel Costs Still Down
By Max Sato
(MaceNews) – Producer prices in Japan rose 0.6% on the year in February, just above the consensus call of a 0.5% gain and accelerating from a 0.2% rise in January, as the base-year effect of government subsidies for utilities has waned and the year-over-year decline in prices for lumber, steel and chemicals has eased, data released Tuesday by the Bank of Japan showed.
It was the 36th straight year-on-year increase but the pace of increase has slowed from 1.1% in October, 2.2% in September and a recent peak of 10.6% reached in December 2022 amid slowing global growth. The index drifted up to a record high of 120.3 in February from 120.1 in January but the BOJ sees the trend as “largely flat” in the past year.
On the month, the corporate goods price index (CGPI) rose 0.2%, also above the median forecast of a 0.1% rise, after being flat in January and rising 0.3% in each of the previous two months. It has eased from the recent peak of a 1.6% rise hit in April 2022. February’s increase was led by utilities, non-ferrous metals, chemical products and farm produce while fuel prices continued falling.
The CGPI’s import price index in yen terms posted its first year-over-year increase in 11 months, up 0.2% in February, after dipping a revised 0.1% in January as the yen continued to depreciate. In contract currencies, the index dropped 8.4% after falling a revised 8.7%. The yen-based import cost increase peaked at 49.5% in July 2022.
The yen depreciated to an average ¥149.42 to the dollar in February during Tokyo trading hours from ¥146.57 in January as speculation for an early lifting of the BOJ’s negative overnight interest rate resurfaced. The yen’s relative strength in a range of ¥130 to ¥134 in the first four months of 2023 helped lower import costs. 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, costs for electric power, gas and water for businesses fell 21.9% on the year in February for the eighth straight drop but the pace of decline decelerated from 27.7% in January. The government has extended its utilities subsidies until April 2024. The program aimed at easing the pain of both households and businesses was launched in January 2023.
Prices for lumber and wood products fell 9.3% from a year earlier for the 15th straight drop but also moderated from a 11.7% drop the previous month. Iron and steel prices fell 3.3% after slipping 3.4% the previous month. Those for chemicals dipped 0.4% following a 0.8% drop.
Prices for foods and beverages — a category with a high weighting of 144.6 out of 10,000 for the domestic CGPI — rose 4.0% on the year in February, slowing from a 4.5% rise in January. Those for transport equipment (150.9 weight) rose 2.2% after a 2.3% gain the previous month.
Prices for non-ferrous metals rose 3.6% on year in for the eighth straight increase after rising 3.2%. Those for petroleum and coal products also posted the eighth increase in a row, up 7.0%, following a 6.8% rise. The prices for ceramic, stone and clay products eased further to a 10.5% rise on year from a 11.2% gain the previous month. Metal product prices were up 3.6%, after rising 3.6%.