Key facts
- Japan's services producer price index (CSPI) held steady at a 3.3% year-on-year increase in May.
- Soaring ocean freight transportation costs (up 61.8%) and international air passenger transport costs (up 17.3%) drove the increase.
- These cost pressures are linked to elevated fuel prices and shipping disruptions.
- Bank of Japan board member Naoki Tamura advocated for raising interest rates every few months toward a neutral rate of approximately 2%.
- Tamura suggested accelerating rate hikes if upside price risks materialize.
Japan's services producer price index (CSPI) held steady at a 3.3% year-on-year increase in May, matching the revised figure from April. This sustained level of inflation in business-to-business services prices is largely driven by significant surges in transportation costs, with ocean freight prices up 61.8% and international air passenger transport costs up 17.3% compared to the previous year. These increases are directly linked to elevated fuel costs stemming from the ongoing Middle East conflict and disruptions to key shipping lanes. The Bank of Japan has identified such business-to-business price increases in distribution and logistics as a key upside inflation risk.
In parallel, hawkish Bank of Japan board member Naoki Tamura stated on Thursday that the central bank should raise interest rates at a pace of once every few months to push them toward levels deemed neutral to the economy, estimated around 2%. Tamura indicated that companies' price-setting behavior changes could lead to quicker and broader pass-through of import price rises, and that the pace of rate hikes should be accelerated if upside price risks heighten. The services producer price data reinforces market expectations for further interest rate adjustments by the Bank of Japan.