Japan wholesale inflation accelerates to fastest in 3 years as energy costs spike

TOKYO - Japan's wholesale inflation accelerated in May at the fastest pace in three years as price pressures from the Middle East war broadened, adding to the case for further interest rate hikes by the central bank.

The Bank of Japan meets next week and is expected to deliver its first interest rate hike since December to cope with mounting inflationary pressures from a weak yen and the war-induced energy shock.

Japan's producer price index in May rose 6.3% from a year earlier, BOJ data showed on Wednesday, exceeding market forecasts for a 5.5% increase and faster than a revised 5.3% gain in April.

The increase, the fastest since March 2023, was driven by higher prices for nonferrous metal, chemical and petroleum goods as the effective closure of the Strait of Hormuz pushed up crude oil and naphtha costs.

"The continued strength in producer price inflation makes it all but certain that the Bank of Japan will hike rates at its meeting next week," said Abhijit Surya, senior APAC economist at Capital Economics.

"We also expect the Bank to speed up the pace of policy tightening going forward, with subsequent hikes coming roughly every four months or so."

On a month-on-month basis, wholesale prices rose 0.9% in May after a revised 2.8% gain in April.

The weak yen continued to fuel import price inflation, bolstering the case for the BOJ to keep raising short-term rates from the current still-low 0.75%.

The yen-based index surged 25.5% in May after a revised 21.0% increase in April, hitting the fastest pace since November 2022, the data showed.

The export price index also soared 20.6% in May from a year earlier on brisk demand for AI-related chips, easing the pain from worsening terms of trade caused by the energy shock.

FASTER PASS-THROUGH

The steady increase in producer prices, seen as a leading indicator of consumer inflation, will likely keep the BOJ under pressure to continue raising rates, analysts say.

"Companies' price-setting behaviour has changed due to rising labour costs and continued increases in raw material prices. This means companies could pass on rising costs faster and broader than in the past," said Yoshiki Shinke, senior executive economist at Dai-ichi Life Research Institute.

While the economy has weathered the impact from the Iran war so far, companies are beginning to feel the strain.

A survey by think tank Tokyo Shoko Research released on Wednesday showed more than 80% of firms saying the war was having a negative impact on their businesses. Among them, 73.3% complained of rising costs for crude-related raw material.

Households may face another wave of price rises in the coming months, as companies seek to pass on higher costs.

Food and beverage makers have announced plans to raise prices for 2,269 items in July, according to a recent survey by Teikoku Databank, up sharply from 1,078 items for June and exceeding the 2,000 mark for the first time since April.

The BOJ exited a decade-long massive stimulus in 2024 and has raised its policy rate several times, including in December, on the view that Japan was on the cusp of durably achieving its inflation target of 2%.

Soaring energy costs from the Middle East conflict have complicated the BOJ's rate decisions, pushing up prices, but also hurting an economy heavily reliant on fuel imports.

After Governor Kazuo Ueda's hawkish signal last week, markets have nearly fully priced in the chance the central bank will raise its short-term policy rate to 1% from 0.75% at the two-day meeting ending on June 16.

(Reporting by Leika Kihara; Editing by Himani Sarkar and Jacqueline Wong)

Copyright Reuters or USA Today Network via Reuters Connect.

This story was originally published June 10, 2026 at 3:10 AM.