–Weak Yen Also Pushing Up Business Import Costs
—Producer Inflation Highest Since +3.4% in August 2023 but Still Below Recent Peak of +10.6% in December 2022
–Producer Prices Up 0.7% M/M on Utilities, Non-Ferrous Metals, Farm Produce
By Max Sato
(MaceNews) – Producer inflation in Japan jumped to a higher-than-expected 2.4% in May from 1.1% (revised up from 0.9%) in April as the government raised the renewable energy charge that users pay for greener electricity purchased by utilities and global copper supply concerns are boosting non-ferrous metals prices, data released Wednesday by the Bank of Japan showed.
The 39th straight year-over-year increase was above the median forecast of 2.1% and was led by a much smaller drop in utilities (down 7.4% versus minus 19.6% in April) and a surge in non-ferrous metals (up 20.7% versus plus 11.8%). It is the largest gain since the 3.4% increase in August 2023, but far below the recent peak of 10.6% hit in December 2022. The prices for food and beverages have stabilized just above 3% while those for metal products and transport equipment continued showing smaller gains.
On the month, the corporate goods price index (CGPI) rose 0.7%, also above the median forecast of a 0.5% rise and following a 0.5% rise (revised up from 0.3%) in April. It has eased from the recent peak of the 1.6% rise reached in April 2022. The increase in May was led by utilities (electricity), non-ferrous metals (copper), farm produce (pork and polished rice) and refined petroleum products (jet fuel).
The CGPI’s import price index in yen terms rose 6.9% in May, which remains the highest since the 9.4% rise in March 2023 and follows a 6.6% rise in April. In contract currencies, the index still dropped 3.0% but the pace of decrease decelerated form a 4.1% drop. The yen-based import cost increase peaked at 49.5% in July 2022.
The yen depreciated further to an average ¥156.13 against the dollar in May during Tokyo trading hours from ¥153.43 in April and ¥149.63 in March. Last year, 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 in July 2023.
This year, the dollar surged to a 34-year high of just above ¥160 on April 29 on expectations that interest rates in Japan will remain low and a U.S. rate cut is unlikely at least until September, but stealth dollar-selling intervention by the Ministry of Finance pushed the U.S. currency briefly below ¥155. The MOF also quietly stepped into the forex market on May 2, when the dollar dipped to around ¥153 from ¥157. MOF data on May 31 showed it had bought a total of ¥9.79 trillion between April 26 and May 29, a record amount in Tokyo’s dollar-selling intervention. Previously, the dollar briefly surged to a 32-year high of ¥151.94 in October 2022 but Japan’s two rounds of yen-buying forex intervention (totaling ¥6.35 trillion) 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 7.4% on the year in May for the 11th straight drop after falling 19.6% in April.
The prices for lumber and wood products fell 2.4% from a year earlier for the 18th straight drop but moderated further from a 4.1% drop the previous month. Iron and steel prices fell just 0.1% after dipping 0.6% the previous month. Those for chemicals rose 0.7% following a 0.3% fall.
The prices for foods and beverages — a category with a high weighting of 144.6 out of 10,000 for the domestic CGPI — rose 3.1% on the year in May after rising 3.1% in April. Those for transport equipment (150.9 weight) rose 1.5% after a 1.9% gain the previous month.
The prices for non-ferrous metals surged 20.7% on year in for the 11th straight increase after an 11.8% rise. Those for petroleum and coal products also posted the 11th increase in a row, up 6.8%, following a 5.3% rise. The prices for ceramic, stone and clay products eased further to a 5.5% rise on year from a 6.7% gain the previous month. Metal product prices were up 2.9%, after rising 3.3%.