By Leika Kihara
TOKYO, Aug 13 (Reuters) – Japan’s annual wholesale inflation remained elevated in July, data showed on Thursday, highlighting broadening price pressures and reinforcing market expectations of an interest rate hike in September.
The data came in the wake of growing hawkish communication from the Bank of Japan including a summary of opinions at its July meeting that showed some policymakers arguing for a faster pace of rate hikes to counter inflation risks.
The producer price index rose 7.2% in July, slower than market forecasts for a 7.4% increase but staying near a 7.3% spike marked in June, BOJ data showed.
On a month-on-month basis, the index edged up 0.1% in July, after a revised 0.5% increase in June, the data showed.
“Wholesale inflation is expected to re-accelerate as renewed tension in the Middle East is pushing up crude oil prices, which will push up the cost of energy and other goods,” said Masato Koike, senior economist at Sompo Institute Plus.
He said that further yen falls could also lift import prices, predicting the BOJ would raise interest rates in September.
Thursday’s data showed that, despite a decline in oil-related costs in June, strong demand tied to the AI boom, elevated global metal prices and higher raw-material costs stemming from the Middle East conflict continued to drive price gains across a broad range of goods.
Nonferrous metals prices surged 40.6% year-on-year in July after a 39.3% spike in June, the data showed. The price of chemical products rose 12.9% in July after a 15.1% gain in June.
The yen-based import price index rose 29.1% in July from a year earlier, after a 30.1% surge in June, a sign the currency’s weakness was pushing up import costs and broader inflation.
The BOJ kept policy steady last month but warned that underlying inflation could exceed its target on mounting price pressures, signalling the strong chance of a September rate hike.
In a report issued in July, the BOJ highlighted the recent spike in wholesale inflation as a key sign of increasing inflation risks that could warrant additional rate hikes.
The rising wholesale price impulse could lead to broad-based increases in consumer inflation, which stayed below the BOJ’s 2% target in recent months due to government subsidies aimed at curbing fuel costs, analysts say.
Annual core inflation in Tokyo, seen as a leading indicator of nationwide trends, hit 1.9% in July, accelerating from the previous month in a sign companies were steadily passing on rising costs to households.
Concerns within the BOJ over the weak yen’s impact on households and retailers through higher import costs have reinforced expectations for another rate increase, with analysts forecasting a move to 1.25% from 1% at its next September 17-18 policy meeting.
Sources have told Reuters a recent joint Japan-U.S. yen intervention and comments from U.S. Treasury Secretary Scott Bessent signalling his desire for an early rate hike have all but locked in a September rate hike.
(Reporting by Leika Kihara; Editing by Tom Hogue and Shri Navaratnam)
