Japan's Wholesale Inflation Accelerates, Keeping BOJ Rate-Hike Plans in Focus

Japan's Wholesale Inflation Accelerates, Keeping BOJ Rate-Hike Plans in Focus

Japan's wholesale inflation surged for the third consecutive month in November, driven by higher raw material and labor costs. This trend intensifies pressure on the Bank of Japan (BOJ) to consider further interest rate hikes as its upcoming policy meeting approaches.

Date: December 11, 2024
Updated: December 11, 2024, 09:17 AM

Key Highlights:

• November CGPI Growth: Wholesale inflation, measured by the Corporate Goods Price Index (CGPI), rose 3.7% year-on-year in November, surpassing market expectations of a 3.4% increase.
• Factors Driving Inflation: Prices of food, nonferrous metals, and plastics continue to rise, reflecting higher commodity and labor costs. Agricultural and fishery goods saw a staggering 31% price increase.
• Policy Implications: Analysts predict the BOJ might raise short-term interest rates from the current 0.25% during its Dec. 19 policy meeting.

Wholesale Price Trends:

November Data

• The CGPI index, at 124.3, marked its third consecutive record high.
• Agricultural and fishery goods experienced sharp inflation, driven largely by soaring rice prices.
• Import prices in yen terms dropped 1.2%, a slower decline than October's 2.2%, as the yen's recent rebound remains insufficient to lower import costs substantially.

Yen Dynamics

• After hitting a three-decade low of 162 against the US Dollar in July, the yen rebounded to 141 in mid-September but has since weakened to around 152.
• This fluctuation affects import costs, complicating the inflationary landscape.

BOJ's Dilemma:

The BOJ's decision to hike rates hinges on whether inflation remains persistently above its 2% target, supported by strong consumer spending and wage growth.

• Past Actions: The BOJ ended its decade-long ultra-loose monetary policy in March 2024 and raised rates to 0.25% in July.
• Future Outlook: Governor Kazuo Ueda has indicated readiness to act if inflationary pressures remain steady, bolstered by domestic consumption and wage increases.

Bottom Line:

Japan's accelerating wholesale inflation underscores the challenge the BOJ faces in balancing growth and price stability. The upcoming policy decision on December 19 will be a critical moment for markets as the central bank evaluates whether further rate hikes are needed to manage persistent inflation.