Japan's Producer Price Index Remains Hot Despite August Cooling

Japan's Producer Price Index (PPI) showed some signs of cooling in August, but still remains hot. The overall PPI headline rose by only 0.1%, while the all-manufacturing PPI increased by 0.3%. However, sequential inflation pressures for Japan's overall PPI show a 7.6% gain over 12 months, accelerating to 12.7% at an annual rate over six months.

These trends are similar for both series, indicating that the deceleration in August is not a sign of a larger trend shift. Japanese PPI data often precede CPI data, and this month's reading suggests that inflation remains restless. In fact, Japan's core inflation registered an expansion of 2.8% over three months.

The Strait of Hormuz disruptions have contributed to rising oil prices, which are currently back above $100 a barrel. This has raised concerns about the impact on global markets and supplies for heating fuels in Europe as winter approaches. The correlation between PPI and oil prices is positive in Japan, with a 0.4 correlation with Brent.