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BOJ develops new indices to measure labor cost impact on services inflation, Reuters reports.

TOKYO Bank of Japan Plans New Indices to Capture Labor Cost Impact on Services Inflation

Bank of Japan to Publish New Indices to Track Labor Costs Impact on Service Sector Inflation

The Bank of Japan announced on Friday its intention to introduce new indices that will provide a deeper understanding of the impact of labor costs on inflation in the service sector. This move comes as there is an increasing focus on the broadening of inflationary pressures.

Upgrade of Services Producer Price Index for 2020

The central bank’s plan to upgrade its services producer price index, set to occur around the middle of this year, will involve tracking the prices that firms charge each other for services. The base year for this index will change from 2015 to 2020.

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Indices for Sectors with High and Low Personnel Fee-to-Total Cost Ratio

As part of the base-year revision plan, the Bank of Japan is considering the publication of an index that tracks the price movements of services where the ratio of personnel fees to total costs is high, such as transportation and information services. Additionally, another index may be published to track service prices for sectors with a low personnel fee-to-total cost ratio, such as leasing, advertising, and real estate.

Significance of Service Inflation for the Bank of Japan

Service inflation is closely monitored by the Bank of Japan as it seeks clues on whether wage hikes are broad enough to prompt companies to pass on rising labor costs through price hikes. The sustained rise of both wages and service prices is crucial for inflation to meet the bank’s 2% target and for the conditions for phasing out its massive monetary stimulus to be met, as indicated by BOJ Governor Kazuo Ueda.

The Bank of Japan’s effort to provide more clarity on the impact of labor costs on services inflation reflects a strategic move to adapt to changing economic landscapes and ensure effective policy-making.

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