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Economy

Japan Inc. charging more for services amid labor shortage

TOKYO -- Japan's tight labor market is pushing up the prices that businesses charge one another for services at the fastest pace in about two decades.

     A Bank of Japan monthly report out Wednesday shows that the services producer price index climbed 3.6% on the year in May, the biggest increase since January 1991. Even excluding the effects of the April 1 consumption tax hike, the index still rose 0.9%, the most since 1993.

     The pace of price growth is particularly swift in industries like transportation and construction where labor shortages are severe. The figure for road freight transportation ticked up 1.1%, excluding the effects of the consumption tax hike, in the largest rise since 2011, when comparable data became available. In a Japan Trucking Association survey, 60% of companies said their employment situation for the April-June quarter is characterized by "labor shortages."

     Other categories with big rises included civil engineering and architectural services, which jumped 4.8%, and software development, up 0.5%.

     According to employment information provider Recruit Jobs, hourly wages for part-time workers in Japan's three major metropolitan areas grew for an 11th consecutive month in May, edging up 9 yen (9 cents) on the year to 954 yen.

     Personnel costs account for a larger share of a company's total costs in services industries than is the case in manufacturing and other sectors. This means that labor shortages tend to apply considerable upward pressure to the price of corporate services.

     Increases are affecting more types of corporate services. Of the 147 categories covered by the BOJ survey, prices rose for 67 and fell for 50, making May the eighth straight month in which the former group was larger than the latter.

      Going forward, observers will be paying attention to whether the uptrend spreads past corporate services to lift durable goods and consumer services as well. The Consumer Price Index accelerated to a 1.5% year-on-year rate of growth in April, but this owed in large part to the higher cost of imported goods on the back of a softer yen. There needs to be a driving force other than a weaker yen behind inflation if the BOJ and the government's 2% inflation target is to be reached. Rising transportation and construction costs could help pull up the CPI.

     At the same time, "there is concern that labor shortages could put the brakes on economic growth itself," as Hideo Kumano of the Dai-ichi Life Research Institute points out. Trouble finding workers is prompting some companies in industries like food services to shelve expansion plans. Ballooning personnel costs also threaten to erode profits.

(Nikkei)

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