Japan Service Inflation Heats Up, Strengthening Case for BOJ Rate Hike
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Service sector inflation in Japan accelerated for the second consecutive month, reaching 3.0% in November, as reported by Reuters. This data, released Wednesday by the Bank of Japan (BOJ), supports the central bank's assessment that rising wages are prompting companies to pass on higher costs to consumers.
The BOJ is closely monitoring service sector inflation for signs that demand-driven price increases are becoming sufficiently widespread to justify further interest rate hikes. The November year-on-year increase in the services producer price index (PPI), which measures prices charged by companies for services to one another, represents an acceleration from the 2.9% increase recorded in October.
The services PPI, at 109.1, stands at its highest level since March 1995. This increase was driven by higher prices across various services, including accommodation, machinery repair, and construction.
The BOJ, aiming to achieve a stable 2% inflation target, ended negative interest rates in March and raised its short-term policy rate to 0.25% in July. Governor Kazuo Ueda has indicated that further rate hikes are likely if inflation remains on track.
While rates were held steady in December, Ueda signaled that the BOJ would closely examine data related to wage growth in the coming year to inform future rate hike decisions. A Reuters poll earlier this month indicated unanimous expectations among economists for a rate increase to 0.50% by March. The BOJ's next rate review meetings are scheduled for January 23-24 and March 18-19.