Japan's producer price index (PPI) rose 3.8% on year in December, matching November for the highest on-year rate since mid-2023, and possibly raising challenges for the inflation-fighting stance of the Bank of Japan.

Through 2024, Japan's PPI has been accelerating, rising from marginal on-year increases below 1% at the start of the year, to the near 4% gains at year-end.

Japan's PPI gauges prices received by domestic producers for goods and services at the wholesale level, largely in business-to-business transactions. The PPI is distinct from the consumer price index (CPI), which measures inflation faced by ordinary shoppers in retail locations.

However, the PPI also measures costs faced by retailers, and is considered a precursor to future movements in the CPI, as shopkeepers and industry try to recoup costs or pass along savings to customers.

Japan's PPI rose sharply in the pandemic era, striking a crest of 10.6% on year in December of 2022, before cooling to 0.3% on year one year later. But through 2024, the PPI has steadily inched higher, raising concerns Japan's inflation rates are too high.

The Bank of Japan has had a 2% inflation target on the nation's CPI since 2013. Through most of the years after 2103, Japan posted inflation rates below the central bank's target, a result seen by some observers as an undercharged economy, one of tepid real growth.

But in the aftermath of the pandemic era, the nation's CPI reached 4.3% in December of 2023, and has remained stubbornly near 3% for most of 2024, above the Bank of Japan's 2% target.

The nation's central bank is slated to meet for a policy session next week and to announce rate changes, if any, on Jan. 24.