Japan's producer price index rose 0.3 percent on the month in September after dropping a 0.2 percent in August. This index has oscillated between increases and decreases in recent months. PPI inflation was unchanged at 2.7 percent in September, just above the recent low of 2.5 percent recorded in July.

The steady year-on-year increase in headline producer prices in September reflects offsetting moves among components. Utilities prices, around 6 percent of the index rose 0.7 percent on the year, rebounding strongly from a previous drop of 3.1 percent. Other major categories, however, showed weaker price changes. The year-on-year increase in food prices, around 13 percent of the index, eased slightly from 4.9 percent to 4.7 percent, petroleum and coal prices, which represent around 6 percent of the index, fell 1.8 percent on the year after dropping 1.5 percent previously, and the year-on-year change in transportation equipment prices, around 14 percent of the index, eased from 2.2 percent to 2.0 percent.

Producer inflation in Japan is forecast to post a 2.5% rise on the year in September after rising 2.7% in August and stabilizing under 3% in recent months thanks to summer fuel subsidies and easing domestic rice supply shortages.

The year-on-year increase in the corporate goods price index decelerated to a 15-month low of 2.5% in July (the slowest since 1.2% in April 2024) from 2.7% in June after having hit a recent peak of 4.3% in each of February and March this year (the highest since 4.5% in June 2023).

On the upside risk, however, the previous import cost-cutting effects of a firmer yen on the year has lost its shine as the yen’s weakness seen in the first seven months of 2024 that peaked at Y158.06 to the dollar (Tokyo hours spot monthly average rate) in July last year vs. Y146.71 in July this year. In August, the dollar yen rate averaged at Y147.67, with the yen slightly weaker than the August 2024 rate of Y146.23.

On the month, the CGPI is forecast to post its first rise in two months, up 0.2%,
after dipping 0.2% in August and rising 0.3% in July. The decrease in August was led by lower costs for utilities (electricity and natural gas) and farm produce (pork, chicken eggs and beef), items that had driven the July increase.

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.