Summary
Japan's services producer price index increased 2.6% in January from a year earlier, matching the December gain, according to Bank of Japan data. The uptick was led by higher bills for construction work and temporary staff services, underscoring the role of a tight labour market and rising wages in sustaining inflationary pressure.
Data released on Wednesday show that the services producer price index - the measure of prices companies charge one another for services - recorded a 2.6% year-on-year rise in January, the same pace as in December. The BOJ's report attributed the movement primarily to elevated charges in construction activity and in services provided by temporary staffing firms.
The rise in services-sector prices arrived against the backdrop of broader price dynamics: consumer inflation has been above the BOJ's 2% target for nearly four years. Policymakers interpret the persistence of consumer inflation, together with firming wages, as a sign that price pressures are becoming more embedded in the economy.
In 2024 the Bank of Japan ended a decade-long, large-scale stimulus program. In December it raised short-term interest rates to 0.75% on the assessment that Japan was nearing a durable attainment of its 2% inflation goal. The central bank has communicated a willingness to continue raising borrowing costs if price increases remain steady and are accompanied by further wage gains.
Policy watch
BOJ Governor Kazuo Ueda has stressed that the bank will closely monitor whether sustained prospects for higher wages prompt more firms to pass on increased labour costs to customers. That monitoring will be an important input in judging the timing of any additional rate hikes.
Implications
Sector-level details in the producer price data point to specific services segments - notably construction and temporary staffing - where higher charges are contributing to the overall increase. The central bank's recent policy moves and stated conditionality on further tightening link the trajectory of services prices and wage growth directly to future monetary decisions.
Key takeaways
- Services PPI rose 2.6% in January year-on-year, unchanged from December.
- Increases were driven by higher charges for construction work and temporary staff services.
- The BOJ ended its large stimulus in 2024 and raised short-term rates to 0.75% in December, remaining prepared to hike further if inflation and wages continue to rise.
Note on limitations
The information available in the data release focuses on price movements and central bank statements; further details on sector-specific pass-through mechanisms and firm-level pricing strategies were not provided in this release.