Japan’s wholesale inflation stays elevated in Aug, boosts case for rate hike

TOKYO: Japan’s wholesale inflation remained elevated in August, data showed on Friday, highlighting mounting price pressures that cement the case for the central bank to raise interest rates this month. The data follows recent hawkish communication from the Bank of Japan that led markets to near fully price in the chance of a rate hike to 1.25percent from 1percent at next week’s policy meeting.

The producer price index rose 7.6percent in August from a year earlier, faster than a median market forecast for a 7.4percent increase, BOJ data showed. It followed a revised 7.7percent gain in July.

On a month-on-month basis, the index dipped 0.2percent in August, after a revised 0.4percent increase in July, the data showed. The yen-based import price index rose 24.8percent in August from a year earlier, after a revised 29.3percent surge in July, a sign the currency’s weakness during the month pushed up import costs and broader inflation.

Rising fuel costs from the Middle East conflict and higher import prices from a weak yen have added price pressure to the economy, prodding warnings from the BOJ of the risk of an inflation overshoot. BOJ Governor Kazuo Ueda has said the central bank was closely watching wholesale inflation for clues on the degree to which firms could pass on costs to households.

The BOJ raised interest rates to a 31-year high of 1percent in June on the view Japan was on the cusp of durably hitting its 2percent inflation target. It kept rates steady in July but signalled a strong chance of a near-term hike on mounting price pressures.

Analysts polled by Reuters expect the BOJ to hike rates to 1.25percent next week and then to 1.75percent in the second quarter of 2027, earlier than previously thought, amid persistent concerns over broadening price pressures and yen weakness.