As the situation continues to establish itself in Iraq and Syria, Japan's wholesale price index continues to climb as companies are faced with rising prices for gasoline, chemical products, and metals which contribute to rising pressure on the corporate profits of many companies throughout Japan.
In March, according to the corporate goods price index, wholesaler prices rose 2.6 percent from the previous year, significantly exceeding market expectations where top-level analysts predicted an increase of 2.2 percent. The increase in wholesaler prices from February 2020 to March 2020 was up 2.6 percent as well as significantly up from the previous month as well.
Prices for wholesale goods as measured on a year-over-year basis are forecasted to continue increasing for the foreseeable future; this prediction coincides with forecasts that increased demand for both imported and locally produced products will continue into the foreseeable future.
Rising prices for wholesale goods as well as sustained increases in demand create concerns regarding inflation as it may affect consumer purchasing power. The inflationary pressures due to rising prices in the wholesale market continue to generate concern regarding the outlook for the Bank of Japan's monetary policy.
As a result, the Bank of Japan's monetary policy outlook will need to take into consideration the growth in the wholesale market segment and its effect on the increase in consumer purchasing power, inflation, and demand for imported and domestically produced goods.
Geopolitical tensions throughout West Asia have intensified endurance-based costs of importing goods into Japan's economy and will continue being affected by these tensions as prices vary for goods consumed domestically in Japan due to rising importation costs caused by shifting demand factors developing as a consequence of geopolitical disputes within markets outside of Japan.
In March, Japanese-based prices for imported products increased 7.9 percent compared to a year ago and 2.7 percent compared to February being driven largely from rising fuel/energy prices resulting from many different sources around the world.
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Japanese manufacturers' input costs will likely eventually be spread more broadly through consumer price increases due to higher overall product input costs when fuel/prices fluctuate; however, they may add additional complexity to the challenge facing the Bank of Japan as they shift away from their extreme amounts of liquid stimulus policies.
Japan just recently moved away from extended periods of low inflation; but with very high input costs continuing, moving forward, there will be difficulty in passing those increases through to price increases driven by increased demand for traded goods globally; and therefore creating difficult decisions for the Bank of Japan regarding interest rates increases based on making appropriate decisions on interest rate increases relative to existing finance-based monetary policy and the real economy over time.
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The uptick in wholesale inflation comes amid broader uncertainty in global markets, where the fallout from the West Asia conflict continues to disrupt supply chains and drive volatility in oil and commodity prices.