Japan’s Corporate Service Inflation Remains Steady, BOJ Focuses on October Data – Reuters

By Leika Kihara

TOKYO – A key indicator of inflation within Japan’s service sector remained unchanged at 2.7% in August, according to data released on Wednesday. This stability reinforces the central bank’s perspective that increasing wages are encouraging more companies to transfer higher labor costs to consumers through price increases.

The Bank of Japan (BOJ) is closely monitoring service-sector inflation to determine if demand-driven price increases are widespread enough to warrant further interest rate hikes.

The year-on-year rise in the services producer price index, which tracks the prices companies charge each other for services, matched a revised 2.7% increase recorded in July, as indicated by BOJ data.

This rise was largely influenced by price hikes in sectors that closely respond to wage increases, such as temporary staffing agencies and automobile repair services.

BOJ Governor Kazuo Ueda has noted the importance of observing service inflation data for October, a month when Japanese companies typically revise prices for goods and services biannually.

“While we can make some preliminary estimates, it is crucial to examine the actual data to verify whether wage-driven increases in service prices will expand in October,” he stated at a news conference on Wednesday.

The BOJ’s services producer price index for October is expected to be released on November 26, with consumer inflation data for the same month scheduled for release on November 22. The BOJ is likely to hold off on raising interest rates at its upcoming policy meeting on October 30-31, as it awaits these key data points.

The BOJ had ended its negative interest rate policy in March and raised its short-term policy rate to 0.25% in July, citing steady progress toward achieving its 2% inflation goal.

Ueda has indicated that the BOJ will continue to raise rates if inflation remains on target to sustainably reach 2%, while also highlighting the need to assess how global economic uncertainties affect Japan’s fragile recovery.

Consumer inflation data revealed that general services, the prices consumers pay for various services, increased by 2.0% in August compared to the same month a year earlier, following a 1.8% rise in July.