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Japan’s Business Service Prices Increase at Fastest Annual Rate Since March 2015
Rising labor costs in service sectors like machine repair and industrial renovation have led to the fastest annual increase in Japan’s business service prices since 2015. Policymakers view wage growth as essential for sustained demand-led inflation and further rate hikes. Recent significant pay hikes reflect a shift in BOJ’s policy amid Japan’s fragile economy.
Japanese corporate services prices in April rose at their fastest pace since early 2015, boosted by labour costs in the services sector in a positive signal for policymakers looking for wages-led cycle of demand growth. The Corporate Services Price Index (CSPI) rose 2.8% year-on-year in April, following a 2.4% increase in the previous month. For the month, the service prices rose 0.7% from March, slowing from the prior month’s 0.9%. The annual gains reflect rising labour costs in labour-intensive service businesses such as machine repair and industrial facility renovation. The index is closely watched by policymakers as they look for solid wages to spark durable demand-led inflation, which is a prerequisite for further Bank of Japan rate hikes after its landmark decision in March to end negative rates.
Low wages in Japan have long been a stumbling block to fostering sustainable consumption and broader economic growth. But businesses have recently delivered their biggest pay hikes in decades, seen by many as a major reason for BOJ’s policy shift.
The central bank has signaled it will continue to raise interest rates albeit at a sedate pace given the fragile state of the Japanese economy.
Source: Reuters