According to data from the Bank of Japan, Japanese corporate services prices in April experienced their highest growth rate since early 2015. This increase was driven by rising labor costs in the services sector, providing a positive sign for policymakers who are hoping for a demand-led growth cycle fueled by higher wages.
In April, the Corporate Services Price Index (CSPI) rose by 2.8% compared to the previous year, following a 2.4% increase in the previous month. On a monthly basis, service prices grew by 0.7% from March, although this was slightly slower than the 0.9% growth seen in the previous month.
The yearly increase in prices can be attributed to the rising labor costs in labor-intensive service industries such as machine repair and industrial facility renovation.
Policymakers closely monitor the CSPI as they seek evidence of sustained wage growth, which is crucial for generating inflation driven by demand. This is seen as a necessary condition for the Bank of Japan to consider further interest rate hikes, following its landmark decision in March to end negative rates.
For years, low wages in Japan have hindered the development of sustainable consumption and overall economic growth. However, businesses have recently implemented significant wage increases, which many believe is a key factor behind the Bank of Japan’s (BOJ) change in policy.
Despite the fragile state of the Japanese economy, the central bank has indicated its intention to gradually raise interest rates.