BOJ index shows more Japanese companies pass on wage costs to service prices

BOJ index shows more Japanese companies pass on wage costs to service prices
BOJ index shows more Japanese companies pass on wage costs to service prices

The price Japanese companies charge each other for high-labor-cost services rose 2.8 percent in April from a year earlier, the fastest rise in nearly four years, data from the company showed. central bank on Tuesday.

The data shows that prospects of steady wage increases are prompting more companies to charge more for their services, a trend the Bank of Japan (BOJ) sees as a prerequisite for raising interest rates compared to their current level close to zero.

The index, which measures business-to-business prices for services with a high labor cost ratio, reached 106.4 in April, the highest level since comparable data became available in 1985.

The year-on-year rate of increase, of 2.8%, is the fastest since August 2020.

The BOJ created the index, along with another index measuring service prices for industries with a low labor cost ratio, as part of a revision to the base year of the price index to the production of services which takes effect from data for the month of May.

The price of services where labor costs represent a significant portion of the total cost, such as software development, have a stronger correlation with wages than that of low-labor cost services, which are more influenced by global commodity prices, according to the central bank.

“The price of services with a high labor cost ratio, on average, has accelerated its rate of increase in recent years, for a wider range of services,” the BOJ said in a research paper analyzing labor trends. price of services published Tuesday.

Service prices are key to determining when the BOJ might raise interest rates. BOJ Governor Kazuo Ueda said the central bank will examine whether wages will rise sustainably and encourage businesses to pass on higher costs in service prices, before deciding when to raise interest rates. ‘interest. (Reporting by Leika Kihara; Writing by Kim Coghill)

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