Japan's wholesale inflation stays hot, bolstering odds of September BOJ hike

Tokyo, Aug 13 - Japan's wholesale inflation remained strong in July, signaling rising price pressures and increasing odds for a Bank of Japan interest rate hike in September. This followed hawkish remarks from the central bank, with some policymakers arguing for quicker rate hikes to tackle inflation. The producer price index climbed 7.2% in July, slower than the 7.4% forecast but close to the 7.3% surge seen in June.

On a month-over-month basis, it increased 0.1% in July, up from a revised 0.5% gain in June. Analysts point to factors like Middle East tensions driving up oil prices, the AI boom, and increasing raw-material costs as reasons for the inflation surge. The yen's depreciation is also expected to raise import prices, further fueling inflation.

Despite a slight slowdown in oil-related costs in June, strong demand linked to the AI boom, high global metal prices, and Middle East conflict-related raw-material costs continue to push prices up across various goods. Nonferrous metals prices jumped 40.6% year-on-year in July, while chemical product prices rose 12.9% in July, compared to a 15.1% increase in June.

The yen-based import price index surged 29.1% in July from a year ago, reflecting the currency's weakening and higher import costs. The BOJ maintained its stance in July but warned that inflation could surpass its 2% target due to mounting price pressures, indicating a high probability of a September rate hike. Core inflation in Tokyo, a key indicator of upcoming nationwide trends, reached 1.9% in July, up from the previous month.

Concerns about the weak yen's effect on consumers and retailers through higher import costs have fueled expectations for another rate increase, with forecasts pointing towards a 1.25% target from 1% at the September 17-18 policy meeting.