Wholesale price inflation in Japan spiked to 9.1 percent in May from a year ago, reflecting how higher raw material prices and weaker yen against the US Dollar that led to an increase in import costs are affecting the end-users, the Bank of Japan (BoJ) data showed.
Wholesale inflation shot up for the 15th consecutive month in May as the conflict in Ukraine clogged supply chains.
The 9.1 percent gain in wholesale prices comes on the heels of a revised 9.8 percent rise in April, the fastest acceleration on record.
The Bank Of Japan maintained its ultra-low rate policy that somewhat contributed to a sharp fall in the yen against the dollar and the euro, as the U.S. The Federal Reserve and the European Central Bank had a hawkish stance to curb inflation.
Import prices increased to a record 43.3 percent from a year ago, while export prices jumped 16.7 percent, both in the terms of yen.
The Bank of Japan expects that commodities inflation will be short-lived, but increasing expenses are a concern for businesses that are under pressure to protect earnings by boosting retail prices without frightening away customers.
Prices of petroleum and coal products increased 21.6 percent in May, while Iron and steel became 29.8 percent costlier. Lumber and wood product prices spiked 56.1 percent. Electricity, gas, and water bills got 28.6 percent heavier on pockets.
“The big picture that higher commodity prices are accelerating wholesale inflation has not changed,” a BOJ official said.
Japan is a country that is known for deflation. The rising prices issue has become a matter of contention ahead of the House of Councillors election in July as the nation is grappling with an increase in the cost of living with no growth in wages.
CPI Inflation Breached Central Bank Target For The First Time In April:
For the first time in the last seven years, Japan’s core consumer inflation in April breached the central bank target of 2%. The rising import costs prompted this increase.
BoJ aimed at a 2% inflationary target with a perspective of demand-pull inflation where the rise in wages would create a “cycle” of consumer spending that further would push salaries and wages. But, what Japan is seeing now is cost-push inflation. In such a scenario, the prices of goods are rising, but not the income.
Before April, the CPI had never increased above the 2% level mark since 2015. For years, consumer price inflation struggled to even reach the 1% mark despite how hard BOJ tried to get it to 2.0%.
The BOJ had set 2% as its inflation target in 2013, during the first year of the tenure of its governor–Haruhiko Kuroda.
It is to be noted that since the 1990s, Japanese wages have barely increased compared with the cost of living. It remains one of the main reasons the world’s third-biggest economy struggles as it puts consumers in a paradox of choice– whether to save or spend?
Also, it is not common for companies to pass on additional expenses to their customers in Japan. With the production cost increasing, the companies are compelled to hike the final products’ cost.
With this perspective, Consumer Inflation for a Japanese citizen is beyond tolerable levels, but when compared with the rest of the world, it is still within the bandwidth of tolerance.