Japan’s Corporate Services Prices See Fastest Annual Rise Since 2015

Japanese corporate services prices saw a significant increase in April, marking the fastest annual pace since March 2015, according to data released by the Bank of Japan. This rise was primarily driven by labour costs in the services sector, signaling potential growth in demand.

The Corporate Services Price Index (CSPI) surged by 2.8% year-on-year in April, surpassing the 2.4% increase from the previous month. On a monthly basis, service prices went up by 0.7% from March, although the rate of increase slowed compared to the previous month’s 0.9%.

The surge in annual gains can be attributed to the escalating labour costs in labour-intensive service businesses like machine repair and industrial facility renovation. This uptrend in prices is crucial for policymakers as it indicates a potential shift towards sustainable demand-led inflation, a key factor for future interest rate hikes by the Bank of Japan.

Despite historically low wages in Japan being a hindrance to economic growth, recent pay hikes by businesses have been substantial, leading to speculations that the policy shift by the Bank of Japan in March was influenced by this development. The central bank has hinted at further rate hikes in the future, albeit at a cautious pace due to the fragile state of the Japanese economy.

With a focus on bolstering sustainable consumption and overall economic growth, the rise in corporate services prices underscores a positive trajectory for Japan’s economy. It remains to be seen how these developments will shape the future monetary policies of the Bank of Japan.

Source: Reuters

By Tetsushi Kajimoto; Edited by Sonali Paul and Shri Navaratnam