By Leika Kihara
TOKYO (Reuters) -Japan’s annual wholesale inflation slowed in May on falling import costs for raw materials, data showed on Wednesday, taking some pressure off the central bank to raise interest rates.
But the rise in wholesale prices for food and beverages gathered pace in May in a sign global uncertainties and soft consumption are not discouraging firms to pass on higher costs.
The corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, rose 3.2% in May from a year earlier, data showed, falling short of a median market forecast for a 3.5% gain.
It followed a revised 4.1% increase in April and marked the slowest year-on-year rise since a 3.1% gain in September.
“As wholesale inflation slows, consumer prices will also come under downward pressure with a lag,” said Masato Koike, senior economist at Sompo Institute Plus.
“The BOJ may have lost the opportunity to raise interest rates because inflation will have slowed significantly by the time the fog hanging over Japan’s tariff talks (with the U.S.) clears,” he said.
Prices of steel goods fell 4.8% and those of chemical products were down 3.1%, while non-ferrous metals products saw prices slide 2.1%, the data showed.
The yen-based import price index fell 10.3% in May from a year earlier after a 7.3% drop in April, indicating the currency’s rebound was pushing down raw material import costs.
By contrast, prices of food and beverages rose 4.2% in May, accelerating from a 4.0% increase in April in a sign of simmering inflationary pressure, the data showed.
Japan is struggling to reach a deal with Washington in tariff negotiations, clouding the outlook for its economy, which is heavily reliant on automobile shipments to the U.S.
The uncertainty over U.S. trade policy forced the BOJ to cut its growth forecasts on May 1, suggesting the timing of its next rate hike may be delayed despite steadily rising inflation.
Japan’s core consumer inflation hit 3.5% in April, marking the fastest annual pace in more than two years and exceeding the BOJ’s 2% target for more than three years, due largely to a surge in food costs.
While the BOJ expects food inflation to moderate later this year, it has signaled its readiness to raise rates again once the economy resumes a recovery on solid wage gains.
The BOJ ended a decade-long stimulus programme last year and in January raised interest rates to 0.5% on the view Japan was on the cusp of durably hitting its 2% inflation target.
A Reuters poll, taken on May 7-13, showed most economists expect the BOJ to hold rates steady through September with a small majority forecasting a hike by year-end.
(Reporting by Leika Kihara; Editing by Himani Sarkar and Sam Holmes)
Comments