Japan's wholesale prices continued to rise in September, though at a slower pace than the previous month. The corporate goods price index, which tracks prices between businesses, increased by 6.8% year-over-year, down from a 7.6% gain in August. This slowdown was slightly better than market expectations, which had predicted a 7.6% rise. However, the yen-based import price index surged by 24.5% in September, reflecting the impact of the yen's weakness on raw material import costs.
The Bank of Japan (BOJ) will consider this data when updating its quarterly growth and inflation forecasts at its upcoming policy meeting. Masato Koike, a senior economist at Sompo Institute Plus, noted that while wholesale inflation may re-accelerate due to uncertainties in the Middle East and elevated crude oil prices, there is no immediate sign of sharp acceleration. This suggests the BOJ may hold off on another rate hike in October and wait until December.
The recent spike in wholesale inflation was a key factor in the BOJ's decision to raise interest rates in June and September. While farm product prices fell by 13.3% due to lower rice prices, other goods such as processed food, electric machinery, and telecommunications equipment saw price increases. Chemical goods rose by 13.3%, plastic products by 12.8%, and non-ferrous metals by 40.2%, highlighting the cost pressures from the weak yen, the US-Israeli war on Iran, and strong AI-related demand.
BOJ Governor Kazuo Ueda emphasized that future rate hikes will depend on how wholesale price pressures spread to consumer inflation and affect consumption. Recent data showed core consumer inflation in Tokyo accelerated in September at its fastest pace in 10 months. The BOJ may signal this month that underlying inflation has hit its 2% target, paving the way for another rate hike by the end of the year. The BOJ's policy meeting on October 29-30 will release fresh forecasts, closely watched by market participants for clues on the timing of the next rate hike.