Services Inflation for Japanese Businesses Spikes by Most since 1991, Bank of Japan Gets

Huge month-to-month jumps for second month in a row as businesses jack up their prices for new fiscal year.

By Wolf Richter for WOLF STREET.

The producer price index for services that Japanese businesses buy jumped by 0.82% in April from March, after a similar jump in March from April, according to data from the Bank of Japan. On an annualized basis, both those jumps amounted to just over 10%.

In the data that exclude the consumption tax hikes in the past, the April spike boosted the year-over-year increase to 2.9%, the worst jump going back to 1991.

The fiscal year for Japanese companies begins in April, and many of them adjust their prices at this time, and a big portion of the month-to-month price spikes in March and in April were a result of companies jacking up their prices on services they provide to other companies. They’re now passing on their wage increases.

The services that contributed the most to the year-over-year surge in prices were:

• Civil engineering and architectural services: +7.5%
• Other technical services: + 5.9%
• Training and development services: +6.7%
• Machinery repair and maintenance: +5.5%
• Waste and industrial-waste disposal: +5.1%
• Software development: +4.5%
• Commodities inspection, non-destructive testing, and surveyor certification services: +5.4%
• Leasing of computer and related equipment, communications equipment, motor vehicles, etc.: +5.3%
• Hotels: +22.3%
• Ocean freight: +16.7%
• Domestic air passenger transportation: +10.1%

The recent acceleration can be appreciated in all its glory in this chart below of the index value of the services PPI without consumption tax hikes, showing that all kinds of heck is breaking loose, while the Bank of Japan has its policy rate still at 0%, after one microscopic rate hike in March and indications that it would slow the bond purchases:

Businesses that pay for these price increases in services will pass them on to their customers. Wages are a big factor in services inflation. The BOJ has been pointing at inflation in services as a sign that inflation has been spreading throughout the economy – and it has been.

The Bank of Japan has more than enough inflation-related reasons to hike its policy rates with substantial rate hikes, not minuscule-type hikes of the kind it performed in March from negative 0.1% to 0%. Its refusal-to-hike policy in the face of rising inflation has caused the yen to plunge to about ¥157 to $1 currently, as it’s ultimately the currency that ends up dealing with these kinds of monetary sins.

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