TOKYO, Sept 25 (Reuters) - A leading indicator of Japan's service-sector inflation held steady at 2.7% in August, highlighting the central bank's perspective that increasing wages are motivating more companies to pass on higher labor costs through price increases.
The service-sector inflation rate is closely monitored by the Bank of Japan (BOJ) for indications of whether demand-driven price increases are broadening enough to warrant further interest rate hikes.
The August year-on-year gain in the services producer price index, which measures the prices companies charge each other for services, matched a revised 2.7% gain in July, according to BOJ data.
This increase was driven by price hikes in sectors sensitive to rising wages, including temporary work agencies and car repair services.
BOJ Governor Kazuo Ueda indicated that he will closely observe service inflation data for October, a month when Japanese companies typically revise prices for goods and services biannually.
Ueda stated, 'While there are some elements we can estimate in advance, we need to look at actual data to confirm' whether wage-driven increases in service prices would broaden in October.
The BOJ's services producer price index for October is scheduled for release on Nov. 26, while consumer inflation data for the month is set for release on Nov. 22. Awaiting both data releases suggests the BOJ is likely to refrain from raising interest rates at its next policy meeting on Oct. 30-31.
The BOJ ended negative interest rates in March and raised its short-term policy rate to 0.25% in July, believing Japan is making steady progress toward achieving its 2% inflation target sustainably.
Ueda has noted that the BOJ will continue to raise rates if inflation remains on track to consistently hit 2% as projected, though he emphasized that the bank will take time to assess how global economic uncertainties impact Japan's fragile recovery.
Consumer inflation data indicated that general services, or the prices consumers pay for services, rose 2.0% in August from a year earlier, following a 1.8% gain in July.