Wholesale prices in Japan are rising at a record pace; Ukraine will further boost prices

  • February wholesale price up 9.3% y/y vs f’cast +8.7%
  • Wholesale price index at highest since 1985
  • Rising wholesale prices hit households and retailers
  • The Ukrainian crisis will further increase inflationary pressures

TOKYO, March 10 (Reuters) – Japan’s wholesale inflation accelerated in February at the fastest pace in around four decades on rising fuel prices, a sign that inflationary pressures were building even before that the Ukrainian crisis triggers a generalized surge in commodity prices.

The recent war-induced spike in commodity prices, from oil to metals to grains, will likely continue to drive up wholesale prices in another blow to Japan’s resource-poor economy, which is heavily dependent on imported raw materials, according to analysts.

“Even if the war in Ukraine ends, sanctions against Russia will remain and keep prices high mainly for fuel,” said Takumi Tsunoda, senior economist at the Shinkin Central Bank Research Institute.

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“Rising inflationary pressure is adding to the pain of Japanese consumption, which was already weak compared to that of Western economies, and could set back the country’s recovery,” he said.

The Business Goods Price Index (CGPI), which measures the price companies charge each other for their goods and services, jumped 9.3% in February from a year earlier, data showed on Thursday. of the Bank of Japan (BOJ), the fastest annual rate since comparable data became available in 1981.

The rise beat market expectations for an 8.7% gain and accelerated from a revised 8.9% gain in January, mainly due to a 34.2% jump in oil prices. fuel. The February index, at 110.7, was the highest level marked since 1985.

Of the total constituents making up the index, 67% saw prices rise in February compared to the previous year, a sign that inflationary pressure was widening.

The war in Ukraine has led to a further spike in fuel and commodity prices, which should bring consumer inflation closer to the BOJ’s 2% target in the coming months, but also weigh on the fragile economic recovery of the country.

Households and retailers may feel the effects of the recent rise in raw material costs for most of the year, as the pass-through of these price increases is with some lag.

The recent rise in wheat costs, for example, will affect domestic flour prices from July.

While raw material prices jumped 50.9% in February from a year earlier, prices for finished goods rose only 4.1%, a sign that some companies are struggling to pass on the rapidly rising input costs.

Rising energy costs are adding strain to Japan’s economy, which is expected to see growth come to a halt this quarter as coronavirus dampens consumption. Read more

“Cost inflation will continue for the time being,” said Toru Suehiro, senior economist at Daiwa Securities. “There are no signs of wage inflation in Japan, which means there is a good chance consumer sentiment will cool.”

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Reporting by Leika Kihara; Additional reporting by Kantaro Komiya; Editing by Christopher Cushing, Shivani Singh and Kim Coghill

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