Japanese service firms raised their prices in July at the second fastest rate the survey has ever recorded, and their new order growth fell to a 25-month low

Fifty-one point two.

Japan's service sector grew for a second month in July, and it grew more slowly. The S&P Global services business activity index came in at 51.2, down from 52.2 in June, on responses collected between 9 and 28 July from a panel of around 400 companies in transport, information, finance, insurance, real estate and business services.

The interesting number is not the headline one.

Firms raised their selling prices at the second sharpest rate the survey has ever recorded. At the composite level, taking manufacturing and services together, average selling prices rose at the second fastest pace since the series began in late 2007, behind only May of this year. Input costs kept climbing at a pace close to the four-year record set in June, and the companies answering the survey named the war in the Middle East, higher staff costs and a weak yen as what was driving their expenses up.

Demand is the other half

New business rose only marginally, at the slowest rate in what is now a 25-month run of growth. Foreign demand for Japanese services fell for a fourth consecutive month, although the decline was the mildest since April.

Backlogs of work grew at a fractional pace, the weakest in 17 months. Hiring continued but slowed to a marginal rate. Optimism about the year ahead sits among the lowest readings since the pandemic, which the release attributes to supply chain disruption, costs, an ageing population and labour shortages.

So the sector is charging more while selling less briskly, and its own managers are less confident than they were.

Manufacturing carried the composite

The Japan composite output index was 52.7 in July against 52.8 in June, effectively flat, because factory production rose at its quickest rate since early 2014 and offset the slower service upturn. Composite employment increased for a thirty-fourth straight month.

Annabel Fiddes, economics associate director at S&P Global Market Intelligence, tied the price readings directly to policy: official inflation measures "could move higher and add pressure on the Bank of Japan to raise the policy rate in the coming months."

The Bank raised its policy rate to around 1.0 percent in June and held it in July.