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Japan’s corporate service price index hits 20-year high -Breaking


© Reuters. FILEPHOTO: The Tokyo 2020 Olympic Games are a view of the city skyline and harbor from a window on a quarantine bus during sunrise. Tokyo, Japan. July 24, 2021. REUTERS/Maxim Shemetov

TOKYO (Reuters – An index measuring prices Japanese firms charged each other for services hit a two-decade-high in December. It was a sign that inflationary pressure is building because of rising freight costs, and a rebounding in demand due to a pandemic-induced slump.

According to Bank of Japan data, the services producer price index increased 1.1% in December compared with a year ago. This marks the 10th consecutive month of rises, Bank of Japan data revealed on Wednesday. This index reached 106.0 in December 2001, its highest point since July 2001.

This was due to rising transport costs, with ocean freight charges increasing 38.6% from one year ago in December, according to data. It also highlights the effect global supply chain disruptions have on Japan’s service cost.

Advertising fees rose 6.4% in December, a clear sign of the economy’s opening from COVID-19 restrictions that propped up demand.

Japan was not spared from commodity inflation. In December, wholesale prices spiked 8.5% from one year prior. This is the fastest rate ever recorded.

Core consumer inflation was 0.5% in December. This is well under the BOJ’s target of 2%. Weak consumption dissuades firms from passing higher costs on to consumers.

According to policymakers, stronger wage growth will be critical for inflation to maintainably increase toward the BOJ’s target.

Rising wages could put additional pressure on prices for services, but analysts are skeptical that companies will hike their salaries aggressively if rising raw materials costs and the resurgence of COVID-19 cases clouds the outlook.

Japan has been forced to increase the restrictions on the expansion of regions in order to stem the record number COVID-19-related cases. This is threatening Japan’s fragile economic recovery.

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