TOKYO (Businesshala) – Japan’s wholesale inflation hit a four-decade high in October, after a similar hike in China’s factory gate prices led to supply constraints and rising commodity costs threatening Asian corporate profits.
Rising cost pressures, coupled with a weaker yen, which pushes up the price of imported goods, add pain to the world’s third-largest economy as it emerges from a consumer slowdown caused by the pandemic.
“Rising costs are certainly negative for corporate profits,” said Atsushi Takeda, chief economist at the Itochu Economic Research Institute. “If the economy continues to improve, companies may at some point be able to pass on the cost (to consumers),” he said.
The Corporate Goods Price Index (CGPI), which measures the prices that companies charge each other for their goods and services, rose 8.0% in October from a year ago, for a 7.0% gain from market expectations, Bank of Data from Japan showed on Thursday.
The increase, which exceeded the revised 6.4% increase in September, was the fastest pace since comparable data became available in January 1981.
Wholesale prices rose for a range of goods, including fuel, which rose 44.5% in October from a year earlier, and wood goods, which saw prices rise by 57.0%.
An index measuring yen-based wholesale import prices jumped a record 38.0% in October from a year earlier, a sign the recent yen’s decline was exacerbating already high raw material costs.
Japanese firms have so far been cautious about passing on high costs to consumers, on concerns that cost-sensitive households may cap spending. It has raised core consumer prices by just 0.1% in September from a year ago.
However, a slim majority of Japanese firms say they plan to pass on or pass on commodity costs to customers, a Businesshala survey showed, a sign inflationary pressures are mounting.
This could deal a heavy blow to Japanese consumers compared to other countries, which, given weak wage growth, amplify challenges for Prime Minister Fumio Kishida to achieve his pledge to distribute more money to households.
“The increase in wholesale prices has had a major negative impact on the economy as the burden on firms and households increases,” said Toru Suehiro, an economist at Daiwa Securities.
With elections to the Upper House due next year, Kishida vowed to deliver a series of cash payments to households as part of a new stimulus package to be compiled next week.
Commodity inflation has affected countries around the world. China’s factory gate inflation hit a 26-year high in October, further narrowing profit margins for producers and raising concerns about stagflation.
In the United States, consumer prices posted their biggest increase in 31 years in October, amid signs that inflation could remain at uncomfortably high levels until 2022.
Despite new price pressures, Japan has repelled a global shift by central banks to dial back crisis-mode policies, pledging to keep monetary settings ultra-loose until BOJ Governor Haruhiko Kuroda pledged to keep monetary settings ultra-lax. until consumer inflation reaches the elusive 2% target.