Japan's wholesale inflation accelerated in October, with prices rising 7.1% from a year earlier, Bank of Japan data showed on Thursday. The increase beat the median market forecast of 6.5% and quickened from 6.8% in September, keeping alive expectations that the central bank will raise interest rates at its next policy meeting on 17 and 18 December. Many analysts expect the Bank of Japan to lift its policy rate to 1.5% from 1.25% at that meeting.

What drove the rise

The corporate goods price index, which measures the prices companies charge each other for goods and services, was pushed higher by fuel costs linked to the Middle East conflict and by strong demand for semiconductor chips driven by artificial intelligence. Petroleum and coal prices rose 15.9% in the year to October, faster than the 11.5% gain recorded in September. Chemical goods prices rose 15.5%, accelerating from 13.4% a month earlier.

Sayaka Yamazaki, head of the Bank of Japan's price statistics division, told a news briefing that firms had timed price rises for the start of October, at the beginning of a new quarter and in the latter half of Japan's fiscal year ending in March 2027. She said companies continued to pass on higher labour and raw material costs, alongside increased oil and chemical prices linked to the Middle East conflict.

The weak yen is adding to import costs

The yen-based import price index rose 24.8% in October from a year earlier, the data showed, a sign that the weakness of the currency continued to push up the cost of imported raw materials. That followed a 24.5% rise in September. Masato Koike, a senior economist at Sompo Institute Plus, said uncertainty surrounding the Middle East conflict could keep prices under pressure across a broad range of goods.

What it means for the Bank of Japan

The October figures will be among the factors the Bank of Japan weighs at its December meeting, when it decides whether to raise borrowing costs again. The bank held its key rate at 1.25% on 30 October. A further rise would add to borrowing costs for businesses and households, but the central bank has signalled that it wants to keep price rises in check without damaging growth.

Why wholesale prices matter

Wholesale prices are an early signal of the cost pressures facing businesses. When companies pay more for fuel, chemicals and components, some of those costs are passed on to customers over time, which can feed into the prices households pay. The October data suggests those pressures have not yet eased, even as the central bank prepares for a decision that could shape borrowing costs into next year. Sources: Reuters and Business Today.