Producer prices in Japan rose 0.6 percent on the year in February, just above the consensus call of a 0.5 percent gain and accelerating from a 0.2 percent rise in January, as the base-year effect of government subsidies for utilities has waned and the year-over-year decline in prices for lumber, steel and chemicals has eased. It was the 36th straight year-over-year increase but the pace of increase has slowed from 1.1 percent in October, 2.2 percent in September and a recent peak of 10.6 percent reached in December 2022 amid slowing global growth.

On the month, the corporate goods price index (CGPI) rose 0.2 percent, also above the median forecast of a 0.1 percent rise, after being flat in January and rising 0.3 percent in each of the previous two months. It has eased from the recent peak of a 1.6 percent rise hit in April 2022. The February's increase was led by utilities, non-ferrous metals, chemical products and farm produce while fuel prices continued falling.

Econoday's Relative Performance Index (RPI) stood at minus 9, below zero, which indicates the Japanese economy is performing slightly worse than expected. Excluding the impact of inflation, the RPI was at minus 32.

The CGPI's import price index in yen terms posted its first year-over-year increase in 11 months, up 0.2 percent in February, after dipping a revised 0.1 percent in January as the yen continued to depreciate. In contract currencies, the index dropped 8.4 percent after falling a revised 8.7 percent.

Among the key factors still taming producer prices, the costs for electric power, gas and water for businesses fell 21.9 percent on the year in February for the eighth straight drop but the pace of decline decelerated from 27.7 percent in January. The government has extended its utilities subsidies until April 2024. The program aimed at easing the pain of both households and businesses was launched in January 2023.

Prices for lumber and wood products fell 9.3 percent from a year earlier for the 15th straight drop but also moderated from a 11.7 percent drop the previous month. Iron and steel prices fell 3.3 percent after slipping 3.4 percent the previous month. Those for chemicals dipped 0.4 percent following a 0.8 percent drop.

Prices for foods and beverages rose 4.0 percent on the year in February, slowing from a 4.5 percent rise in January. Those for transport equipment rose 2.2 percent after a 2.3 percent gain the previous month. Non-ferrous metals rose 3.6 percent on year in for the eighth straight increase after rising 3.2 percent. Those for petroleum and coal products also posted an eighth increase in a row, up 7.0 percent following a 6.8 percent rise.

Producer inflation in Japan is expected to accelerate slightly to 0.5 percent in February as the base-year effect of utility subsidies has waned, following a 0.2 percent increase seen in each of the previous two months. It will be a 36th straight year-over-year increase but much slower than the recent peak of 10.6 percent reached in December 2022. The prices for lumber, steel and chemicals remain below year-earlier levels amid slower global demand while the conflict in the Middle East is exerting upward pressures on energy and transportation costs.

The corporate goods price index (CGPI) is forecast to edge up 0.1 percent on the month in February after being flat in January and rising 0.3 percent in each of the previous two months. Import costs for non-ferrous metals eased as the Chinese economy is struggling to recover from the weight of property market problems.

The Producer Price Index (PPI) is a measure of the average price level for a fixed basket of capital and consumer goods paid by producers. Analysts look to the PPI for early signs of inflation in the production process.

The producer price index focuses on the prices of goods transacted between companies. It was previously known as the corporate goods price index. The index reflects the price level for the supply and demand of individual industrial goods. This index is calculated by the BoJ Research and Statistics Department. Three indexes are contained in this release - the domestic producer index, the export price index and the import price index. It is the domestic index that market players follow. The PPI comprehensively tracks input price pressures; however, the PPI has a track record of increasing and not necessarily feeding through to the CPI because of weak demand. But if an increase in the PPI is followed by a rise in the CPI, concerns about inflation may prompt the Bank of Japan to raise interest rates.