Japanese corporate service prices surge in April

Japanese corporate service prices surged noticeably in April, marking the most rapid increase since early 2015, as per the latest data from the Bank of Japan (BOJ) released on Tuesday, Reuters reported.

This upward trend was primarily driven by escalating labour costs within the services sector, offering a positive signal for policymakers aiming to foster demand-driven growth spurred by wage hikes.

The Corporate Services Price Index (CSPI) registered a 2.8 per cent year on year (YoY) rise in April, surpassing the 2.4 per cent uptick observed in the preceding month.

Monthly, service prices showed a 0.7 per cent increase from March, albeit at a slightly slower pace compared to the 0.9 per cent rise in the previous month.

The annual increase primarily reflects the mounting labour expenses in labour-intensive service sectors such as machine repair and industrial facility renovation.

According to Reuters, this index holds significant importance for policymakers as they seek robust wage growth to fuel sustainable demand-led inflation, a prerequisite for further interest rate hikes by the BOJ following its significant decision in March to terminate negative rates.

Traditionally, low wages in Japan have hindered efforts to stimulate enduring consumption patterns and broader economic expansion. However, recent substantial pay raises by businesses, perceived by many as a key catalyst behind the BOJ’s policy shift, have injected optimism.

Moreover, the central bank has signalled its intention to proceed with interest rate increases, albeit at a cautious pace, given the fragile state of the Japanese economy.