By Leika Kihara
TOKYO (Reuters) -A leading indicator of Japan’s service-sector inflation held steady near 3% in October, data showed on Tuesday, reinforcing the central bank’s view that rising wages are prodding more firms to pass on higher labour costs through price hikes.
Service-sector inflation is being closely watched by the Bank of Japan for clues on whether demand-driven price gains are broadening enough to justify raising interest rates further.
The data will be among factors the BOJ will scrutinise at its next policy meeting in December, when some analysts expect it to hike interest rates from the current 0.25%.
The services producer price index, which measures the price companies charge each other for services, rose 2.9% in October from a year earlier, BOJ data showed, accelerating from a 2.8% gain in September.
The increase was driven by rises in services ranging from machinery repair, accommodation and construction work, the data showed.
BOJ Governor Kazuo Ueda has said the economy was progressing towards sustained wages-driven inflation that could allow the central bank to raise still-low rates again.
“We’re seeing progress on the domestic front,” Ueda told a news conference last week, pointing to growing signs that wage hikes will continue and prod companies to raise prices not just for goods but services.
Tuesday’s data followed consumer inflation figures released last week that showed the price companies charged households for services rose 1.5% in October from a year earlier, accelerating from a 1.3% gain in September.
Inflation data for October is being closely watched as a sign of what may come as many Japanese firms typically charge prices for services biannually in April, which is the start of the fiscal year, and October.
The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July on the view Japan was making steady progress towards durably achieving its 2% inflation target.
Governor Ueda has said the BOJ will keep raising rates if inflation remains on track to stably hit 2% as it projects.
Just over half of economists polled by Reuters expect the BOJ to raise rates again at its Dec. 18-19 meeting.