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Analysts expect wholesale inflation to accelerate in coming
months, as the effect of government subsidies to curb utility
bills fade and add to price pressures from rising import costs.
The year-on-year rise in the corporate goods price index (CGPI),
which measures the price companies charge each other for their
goods and services, compared with the median market forecast for
a 0.8% gain and followed a 0.9% increase in March.
An index measuring the yen-based import goods prices jumped 6.4%
in April from a year earlier after a 1.4% increase in March,
Bank of Japan (BOJ) data showed on Tuesday, reflecting the
currency's recent sharp declines.
"Inflationary pressure driven by rising import costs will likely
heighten," said Toru Suehiro, chief economist at Daiwa
Securities. "If such cost-driven price pressure becomes too
strong, the BOJ could see scope to raise interest rates."
The BOJ ended eight years of negative interest rates and other
remnants of its radical stimulus in March as it judged that
sustained achievement of its 2% inflation target was in sight.
Governor Kazuo Ueda has said the BOJ will hike rates only if
inflation heightens on robust domestic demand and wage growth,
and that the central bank will not respond directly to
cost-driven price increases.
But he also warned of the possibility that Japan's inflation may
overshoot expectations as yen moves may be having a bigger
impact on price developments than in the past.
"If inflation overshoots our forecasts or if upside risks become
high, it will be appropriate for us to adjust interest rates
earlier," Ueda said in a speech last week, signaling the chance
of another rate hike in the near-term.
A weak yen is a boon to exporters, but it is also a headache for
Japanese policymakers as it hurts consumption by pushing up the
cost of raw material imports.
Japan's core consumer inflation, which is the BOJ's key price
gauge in setting monetary policy, hit 2.6% in March, staying
above the central bank's 2% target for two years.
A survey by private think tank Japan Center for Economic
Research, conducted between April 26 and May 8, showed many
analysts projecting the BOJ to next hike rates by October.
(Reporting by Leika Kihara; Editing by Tom Hogue and Shri
Navaratnam)
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