| Consensus | Consensus Range | Actual | Previous | Revised | |
| Month over Month | 0.5% | 0.5% to 0.7% | -0.3% | -0.2% | -0.3% |
| Year over Year | 7.6% | 7.6% to 7.8% | 6.8% | 7.6% |
Highlights
Producer inflation in Japan remains high as the Iran war has disrupted global supply chains and kept fuel costs high but its annual rate unexpectedly eased sharply to 6.8% in September from 7.6% in August as farm produce prices marked their first drop in many months thanks to ample domestic supply of rice. Non-ferrous metal prices are still 40% above year-earlier levels and the impact of the Mideast conflict has left chemicals and plastics about 13% more expensive than a year before. Artificial intelligence projects have also boosted memory chip prices globally. The yen is still weak after a recent pickup, leaving import costs high.
The corporate goods price index hit a recent peak of a 7.7% rise on the year in July, which was the highest since 8.4% recorded in February 2023, when upstream prices were on a gradual downtrend after having peaked at 10.6% in December 2022 in the aftermath of Russia’s invasion of Ukraine in February that year.
Inflationary pressures eased on the month, down 0.3% in September, after marking the first decrease in 12 months in August (-0.3%) and rising 0.4% in July. Rice prices are now under year-earlier levels after domestic supply shortages were resolved last year. The month-on-month fall was led by lower prices for farm produce and fuels while the prices of utilities, plastics, food/beverages, chemicals among others posted gains.
Bank of Japan data showed the dollar averaged at ¥156.41 during Tokyo trading hours in September, down further from ¥158.74 in August and ¥162.55 in July, but the U.S. currency was still well above its year-earlier level of ¥147.94. Dollar-denominated securities continue to attract investors with higher returns compared to yen assets.
At its last policy meeting on Sept. 17-18, the BOJ followed up on its June rate hike to raise the target for the overnight interest rate to 1.25% from 1% amid growing risks to inflation but the level of its policy rate remains below the target range for the U.S. federal funds rate at 3.75% to 4.00% after a September Fed rate hike.
Details:
Japan Sept corporate goods (producer) prices +6.8% y/y (Aug +7.6%); median forecast +7.6%
Japan Sept producer prices -0.3% m/m, 2nd straight fall (Aug revised down to -0.3% from -0.2%); median forecast +0.5%
Japan Sept CGPI m/m fall led by lower prices for farm products (rice, pork), fuels; prices of utilities, plastics, food/beverages, chemicals up
Japan Sept CGPI: farm produce prices -13.3% y/y +1.5% in Aug, 1st drop in many months as rice prices begin to fall after shortages resolved last year
Japan Sept CGPI key energy prices: crude oil/coal products +11.5% y/y vs. Aug +14.7%
Japan Sept CGPI: non-ferrous metals +40.2% vs. +43.3% in Aug
Japan Sept CGPI import index +24.5% y/y in yen terms for 10th straight rise vs. revised up to +25.1% in Aug from +24.8%
Market Consensus Before Announcement
Japan’s producer price inflation is expected to stay elevated in September, holding close to its highest level in more than three years as prolonged geopolitical tensions in the Middle East kept crude oil, petroleum products and chemical prices high. The yen’s weakness also continued to put upward pressure on import costs, lifting the country’s producer prices.
The Corporate Goods Price Index (CGPI) is projected to rise 7.6% on the year in September, little changed from a month earlier. This would mark a 67th straight month of year-on-year rise, or over five and a half years of increase. In August, the index eased to a 7.6% rise from July’s 7.7%, which was the highest since February 2023, when it rose 8.4%.
Although the CGPI edged lower in August, inflation remained elevated amid higher petroleum and petrochemical product costs, while strong demand from artificial intelligence projects boosted global prices for memory chips and nonferrous metals. This trend is expected to continue in September, with higher international crude oil prices likely to push domestic petroleum and chemical prices higher.
Prices for other raw materials also remained firm, including steel products, iron scrap and alloys. Prices for steel and oil products, including naphtha and kerosene, also showed signs of rising in September, which is expected to keep producer prices elevated.
The yen stayed under downward pressure even as Japanese and U.S. authorities jointly intervened in the currency market around late July and early August and repeatedly talked up the Japanese yen. Still, the limited recovery of the yen kept producers’ prices buoyant.
On a monthly basis, the CGPI is expected to rise 0.5% in September, marking its first increase in two months after falling 0.2% in August, which was the first monthly decline in 12 months.
Definition
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.
Description
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.