Wholesale prices climb in Japan

Japanese wholesale prices rose more than expected in May, with gains spreading to more products, supporting expectations of an interest rate hike in the third quarter, possibly in August.

Data released Tuesday by the Bank of Japan showed wholesale prices rising 2.2% in May from a year earlier, just above economists’ median forecast of a 2.1% rise.

It was the 39th straight month of annual gains, putting the index at its highest level since January 2000, when its current method of calculation was first used.

Compared with the previous month, the index rose 0.5% in May, matching analysts’ consensus forecast.

Meanwhile, revised government data showed Monday that Japan’s economy grew at an annualized rate of 3.3% in the January-March quarter, backed by solid consumption and exports.

Higher international commodity prices as well as rises in prices of chemicals, steel and nonferrous metals were behind the advance in wholesale prices in May. The weakness in the yen also continued to push up import prices.

After hitting a peak of 3.6% year-on-year growth in August and September last year because of rising energy costs, the wholesale price index slowed as oil prices stabilized somewhat.

But a Bank of Japan official told reporters that prices of more than half of 905 products surveyed for the index rose in May for the first time under the current calculation method.

“That was not the case when the index hit a peak of 3.6% last August-September, which means that back then it was pushed up mostly by oil prices and nonferrous metals,” the official said. “The pace has slowed to 2.2%, but now rises are spreading to more products.”

Data also showed prices of finished goods rose 1.1% from a year earlier, a sign that the higher wholesale prices are gradually being passed on to consumers.

Consumer prices in recent months had been falling slightly. But central bankers say consumer costs will rise in the midst of a sustained recovery in the world’s second-largest economy.

The central bank is expected to keep its key short-term interest rate at 0.5% at a two-day meeting that ends Friday. Many market participants expect a rate hike to 0.75% in August.