Japan’s Wholesale Inflation Remains Stable, Easing Pressure on BOJ

In December, Japan’s wholesale inflation rates remained unchanged from the previous year, marking the twelfth consecutive month of slowing inflation. This trend aligns with the Bank of Japan’s (BOJ) expectations that the impact of rising raw material costs on inflation will gradually diminish.

The corporate goods price index (CGPI), which reflects the prices businesses charge each other for goods and services, remained steady, contrary to market predictions of a 0.3-percent decrease. This outcome, the lowest since a 0.9-percent decline in February 2021, indicates a potential moderation in consumer inflation in the upcoming months, reducing the urgency for the BOJ to end its extensive monetary stimulus.

A significant factor in the slowdown of wholesale prices was the government’s subsidies aimed at reducing petrol and utility expenses, which reduced wholesale inflation by 0.9 percentage points. Additionally, December saw decreases in prices for steel, chemical, and wood products, suggesting a global decline in demand for some commodities, thereby reducing raw material costs for companies.

However, approximately 80 percent of items in the index experienced price increases compared to the previous year, highlighting a widespread inflationary pressure. This trend could assist the BOJ in achieving its 2 percent inflation target.

The wholesale price data, a critical indicator of consumer inflation, plays a vital role in the BOJ’s assessment of overall price trends and influences its decisions regarding the timing of transitioning away from its ultra-loose monetary policy.