Wholesale prices for Japan in April rise due to rising material costs

© Reuters. FILE PHOTO: Wholesalers check the quality of frozen tuna on display during Toyosu Fish Market’s first tuna auction this year in Tokyo, Japan on Jan. 5, 2019. REUTERS / Kim Kyung-Hoon

By Leika Kihara

TOKYO (Reuters) -Japan’s wholesale prices rose at the fastest annual pace in six and a half years in April, data showed Monday, a sign that rising energy and raw material costs weighed on corporate margins.

With the COVID-19 pandemic weighing on domestic consumption, there is uncertainty about whether companies would pass higher costs on to households and help the central bank hit its elusive inflation target of 2%, analysts say.

“The increase is mainly due to solid global demand, which is driving up commodity prices,” said Shigeru Shimizu, head of the BOJ’s price statistics division, adding that prices for goods that are sensitive to domestic demand , have only increased slightly so far.

The Corporate Goods Price Index (CGPI), which measures the prices companies charge each other for goods and services, rose 3.6% year-over-year in April, faster than a median one, data from the Bank of Japan showed Market forecast for growth of 3.1%.

The increase, which followed a 1.2% increase in March, was the fastest increase since September 2014 and was partly inflated by the base effect of the pandemic-induced slump last year.

The increase in April was mainly due to higher raw material costs. Oil prices rose 39.3% year over year and non-ferrous metal prices rose 35.2%.

The effect of rising US real estate demand spread in one sign worldwide, with prices for sawn timber and wood products rising 4.7%.

Of the 744 items in the index, prices rose to 339, compared to 289 items where prices fell year-on-year.

The number of components that were rising in price exceeded the number of components that were falling for the first time in seven months.

Japanese companies have been slow to pass higher costs on to consumers who are sensitive to price increases due to weak wage growth. This has hampered the BOJ’s efforts to push consumer inflation towards its 2% target.

The central bank’s challenge has been compounded by Japan’s fight against the pandemic. According to a Reuters poll, the world’s third largest economy will grow much slower than hoped this quarter.

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