Bank of Japan’s Outlook
Japan’s wholesale inflation experienced a significant slowdown in November, attributed to the decline in fuel and commodity prices, according to data released on Tuesday. This development indicates a reduction in cost-push pressure within the world’s third-largest economy. The Bank of Japan acknowledges that inflation driven by commodities will gradually dissipate and shifts its attention to whether domestic demand will be strong enough for the central bank to phase out stimulus measures.
The corporate goods price index (CGPI), which measures the prices that companies charge each other for goods and services, recorded a 0.3% increase in November compared to the previous year. This figure surpasses the median market forecast of a 0.1% rise. It is worth noting that this marks the 11th consecutive month of slowdown since December last year when wholesale inflation reached 10.6%.
Although the slowdown can be attributed, in part, to the comparison with the previous year’s significant increase in raw material costs, some analysts predict that wholesale prices will begin to decline from December due to the ongoing decline in oil prices and the recent appreciation of the yen. Additionally, considering economic projections, price trends, and currency market movements, there is a possibility that the Bank of Japan may adopt a more cautious stance regarding the normalization of its accommodative monetary policy.
Wholesale Inflation as an Indicator
Wholesale inflation is closely monitored by the Bank of Japan as it serves as a leading indicator of consumer price movements. Despite consumer inflation surpassing its 2% target for more than a year, the Bank of Japan emphasizes the necessity of maintaining its ultra-loose monetary policy until price increases are driven by robust domestic demand and accompanied by substantial wage growth.