Japan's sharp wholesale price rise points to growing inflationary pressure

© Reuters. FILE PHOTO: A woman chooses products at a drug store in Tokyo, Japan January 10, 2023. REUTERS/Issei Kato/File Photo

By Leika Kihara

TOKYO (Reuters) - Japan's annual wholesale prices rose at a faster-than-expected pace in December, data showed on Monday, adding to recent growing signs of inflationary pressure that could keep the central bank under pressure to raise interest rates.

The 10.2% year-on-year rise in the corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, exceeded a median market forecast for a 9.5% gain, Bank of Japan data showed. It followed a revised 9.7% increase in November.

While global commodity prices slipped, companies continued to pass on past increases in raw material costs for goods such as auto parts and electricity equipment, said a BOJ official briefing reporters on the data.

The yen-based import price index rose 22.8% in December from a year earlier, slowing from a revised 28.0% gain in November, in a sign the currency's recent sharp ascent helped temper the cost of importing fuel and raw material.

For the whole of 2022, wholesale prices rose 9.7% on average from the previous year, hitting a record high since comparable data became available in 1981. It was much higher than a 4.6% gain in 2021.

Speculation is rampant in markets that the BOJ could soon phase out its massive monetary stimulus as rising inflation pushes up long-term interest rates, testing its resolve to defend a newly set 0.5% cap on the 10-year bond yield.

At a two-day policy meeting ending on Wednesday, the BOJ will likely raise its inflation forecasts and debate whether further steps are needed to address market distortions it sought to fix with December's surprise tweak to its yield control policy, sources have told Reuters.

Data due out on Friday is expected to show Japan's core consumer prices rose 4.0% in December, double the BOJ's 2% target and a fresh 41-year-high, in a sign of rising living costs for households, according to a Reuters poll.