Producer inflation in Japan jumped to a higher-than-expected 2.4 percent in May from 1.1 percent (revised up from 0.9 percent) in April as the government raised the renewable energy charge that users pay for greener electricity purchased by utilities and global copper supply concerns are boosting non-ferrous metals prices.

The 39th straight year-over-year increase was above the median forecast of 2.1 percent and was led by a much smaller drop in utilities (down 7.4 percent versus minus 19.6 percent in April) and a surge in non-ferrous metals (up 20.7 percent versus plus 11.8 percent). It is the largest gain since the 3.4 percent increase in August 2023, but far below the recent peak of 10.6 percent hit in December 2022. The prices for food and beverages have stabilized just above 3 percent while those for metal products and transport equipment continued showing smaller gains.

On the month, the corporate goods price index (CGPI) rose 0.7 percent, also above the median forecast of a 0.5 percent rise and following a 0.5 percent rise (revised up from 0.3 percent) in April. It has eased from the recent peak of the 1.6 percent rise reached in April 2022. The increase in May was led by utilities (electricity), non-ferrous metals (copper), farm produce (pork and polished rice) and refined petroleum products (jet fuel).

Econoday's Relative Performance Index (RPI) stands at plus 6, just above zero, which indicates the Japanese economy is performing largely as expected. Excluding the impact of inflation, the RPI is at minus 5.

The CGPI's import price index in yen terms rose 6.9 percent in May, which remains the highest since the 9.4 percent rise in March 2023 and follows a 6.6 percent rise in April. In contract currencies, the index still dropped 3.0 percent but the pace of decrease decelerated from a 4.1 percent drop. The yen-based import cost increase peaked at 49.5 percent in July 2022.

Producer inflation in Japan is expected to surge to 2.1 percent in May from 0.9 percent in April as the government jacked up the renewable energy charge that users pay for greener electricity purchased by utilities, transport and labor costs are rising and the weak yen is adding to import costs. The year-over-year declines in lumber and steel prices have eased and food markups have peaked. On the month, the corporate goods price index (CGPI) is forecast to rise 0.5 percent following a 0.3 percent gain, which was led by higher copper prices amid global supply fears, fuels, iron and steel and farm produce.

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.