Bank of Japan Predicts Gradual Ease of Commodity-Driven Inflation

Summary

  • The Bank of Japan (BOJ) data asserts that the impact of commodity-driven inflation will gradually diminish.
  • The focus now shifts on the strength of domestic demand which may determine the phasing out of the BOJ’s stimulus.
  • The Corporate Goods Price Index (CGPI) rose 0.3%, above market expectations.
  • Wholesale inflation experienced a consecutive 11-month slowdown since December 2020, displaying signs of declining from December.

Commodity-Driven Inflation Trends

Authored by Leika Kihara, this article highlights the Bank of Japan’s perspective that the increase in inflation driven by commodities will gradually wane. This shift in perspective turns the market’s attention towards the capability of domestic demand to sustain itself for the central bank to phase out stimulus.

Corporate Goods Price Index insights

The Corporate Goods Price Index (CGPI), the metric that measures inter-company pricing for goods and services, rose 0.3% on an annual basis in November. This figure, as presented by BOJ data, surpassed the median market prediction of a 0.1% rise.

The Impact of Wholesale Inflation

The data suggests a steady decline in the rate of wholesale inflation since December last year, when it soared to 10.6%. Despite the influence of last year’s surge in raw material costs, analysts anticipate a decrease in wholesale prices due to falling oil tariffs and a boost in Yen value.

The Forecast for the Economy

As Takeshi Minami, Chief Economist at the Norinchukin Research Institute, puts it, there’s a possibility for a decline in wholesale prices in the first half of next year. This could subsequently affect consumer inflation. Amid the economic, pricing and currency market outlooks, the BOJ might be circumspect about restoring conventional monetary policies.

More on Inflation and Monetary Policies

Wholesale inflation is considered by the BOJ to offer a potential indication of consumer price changes. While consumer inflation surpassed the 2% target for a considerable duration, the BOJ emphasizes the necessity for its ultra-eased monetary strategy until inflation is primarily driven by strong domestic demand and better wage growth.

The influence of CGPI data on BOJ’s policies can potentially sway Forex trading and other asset markets depending on how they evolve. The eventual impact will be a key area to watch.

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