Japan’s corporate service inflation climbs in sign of broadening price pressures

By Leika Kihara

TOKYO (Reuters) -Japan’s business-to-business service inflation accelerated in October as a tight job market lifted labour costs, underscoring a broadening of price pressures that could heighten the chance of a near-term end to ultra-loose monetary policy.

The services producer price index, which measures the price companies charge each other for services, rose 2.3% in October from a year earlier, up from a revised 2.0% gain in September, Bank of Japan (BOJ) data showed on Monday.

Information and communication, machinery repair and worker dispatching businesses saw fees increase from year-earlier levels due to higher labour costs.

A surge in inbound tourism drove up hotel fees 49.9%.

The data suggest Japan’s economy is making progress towards achieving sustained rises in inflation accompanied by solid wage growth.

BOJ Governor Kazuo Ueda has said inflation has been driven mostly by cost-push factors and must shift to a more demand-driven rise in prices backed by higher wages for the bank to consider normalising its ultra-loose monetary policy.

His remarks have heightened market attention to developments in services prices, which most vividly reflect wages pressures companies face in their businesses.

With inflation having held above the BOJ’s 2% target for more than a year, companies have faced unprecedented pressure to compensate employees with pay hikes to retain and lure talent.

Indications from businesses, unions and economists suggest the labour and cost pressures that had set the stage for this year’s pay hikes – the largest in more than three decades – will persist heading into next year’s key spring wage talks.

A Reuters poll in October showed nearly two-thirds of economists project that the BOJ will end its negative interest rate policy next year.

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