By Leika Kihara

TOKYO (Reuters – Japan’s wholesale inflation reached a record four-decade-high in October. It was caused by a spike in China factory gate prices. These were a result of supply bottlenecks in China and rising commodity costs that threatened Asian corporate profits.

Rising cost pressures and an inflating Japanese yen add pain to third largest economy after it recovers from pandemic-induced consumer slump.

Atsushi Takeda (chief economist, Itochu Economic Research Institute), stated that rising costs can be a negative factor for company profits. According to Takeda, “If the economy continues its recovery, then firms might be able pass on costs to consumers at some time.”

According to Bank of Japan data, the corporate goods price index, which tracks prices that companies pay each other for goods and services in their respective products, jumped 8.0% from a year ago. This was higher than market expectations of a 7.0% increase.

This was the fastest rate of growth since January 1981, when comparable data were made available.

The wholesale prices of a variety of goods rose, including for fuel which jumped 44.5% from last year and timber which saw prices rise 57.0%.

In October, an index that measures yen import prices in wholesale quantities jumped 38.0% from one year before, surpassing a September record 32.2% increase. This is indicative of recent yen drops, which was driving up companies’ raw material costs.

Japanese companies are cautious in passing up higher costs to consumers, as cost-sensitive families may be less likely to spend. Core consumer prices have remained stable at 0.1% for September, compared to a year ago.

A Reuters poll revealed that a very small number of Japanese businesses do not intend to or have already passed on the rising costs of commodities to customers. It is a clear sign that inflationary pressures will continue to increase.

Countries around the globe have been affected by commodity inflation. China’s factory gate inflation was at its highest level in 26 years in October. The rise in prices for coal and power in China caused by a shortage of industrial energy, further depressing producers’ profits and increasing stagflation.

The United States saw its largest increase in consumer prices in 31 years, in October. Americans spent more on gasoline and food. This is despite signs that inflation may remain high into 2022.