(May 28): Japan’s service prices rose at the fastest clip in over 30 years in a sign of a broadening inflation trend that supports the case for the Bank of Japan (BOJ) to raise interest rates.

The services producer price index, a measure of the cost of a range of goods and services provided by businesses to other firms and government entities, jumped 2.8% from a year earlier, the BOJ reported Tuesday.

That marks the fastest pace of growth since September 1991, excluding periods affected by sales tax increases. The reading came in hotter than the 2.3% forecast by economists.

The BOJ has highlighted service prices as a key measure of the spread of inflation throughout the wider economy. Evidence that the strongest price growth in decades is taking root throughout the economy backs the view that inflation can be sustained.

Tuesday’s data may encourage the central bank to consider bringing forward the timing of its next interest rate hike after it pushed up borrowing costs in March for the first time since 2007. About 41% of BOJ watchers forecast October to be the time for the BOJ’s next rate hike, with most of them flagging an earlier move in July as a risk scenario, according to Bloomberg survey in April.

“If price increases accelerate due to a weaker yen and other cost-push factors, there’s a good chance the BOJ will move up the timing of the raising interest rate to July or summer,” said Kazuki Kitatsuji, an economist at The Japan Research Institute, adding that a hike in October is still his main scenario.

While central banks across the world previously took aggressive action to hike interest rates and curb inflation, the BOJ has taken a far more cautious approach after more than a decade of trying to generate a positive wage-price cycle that fuels growth.

The BOJ’s caution has maintained pressure on Japan’s currency, due to the disparity with US interest rates, and kept inflation above its 2% target for more than two years, fuelling voter angst.

Inflation topped the list of policy tasks that people want Prime Minister Fumio Kishida to tackle, according to a May poll by the Nikkei newspaper. The poll showed 39% of respondents citing the need for more measures to combat rising prices.

BOJ Governor Kazuo Ueda and Deputy Governor Shinichi Uchida said Monday that there is scope for gradually raising interest rates now that the nation has shifted away from an inflation norm of 0%.

The report showed that machinery repairs and maintenance, leasing of infotech equipment, and road freight transportation were among the biggest contributors to the year-on-year surge. Hotel prices continued to rise by over 20% from a year ago, but at a slower pace than last month.

As the month marking the start of a new fiscal year, April is a time when many companies adjust prices. About 60% of major service providers surveyed in March said they would lift their prices or consider doing so in April, according to a Nikkei report.

Service prices are expected to maintain upward momentum going forward, partly due to wage gains that Japanese workers have seen this year. The country’s largest umbrella group of labour unions reported its members secured wage increases in excess of 5% during this year’s negotiations so far, with services workers in retail and telecommunication achieving above-average gains.

“Wages are rising across the board, with an increasing tendency to pass on higher labour costs to customers,” said Kitatsuji.

The yen’s ongoing weakness will likely feed into further price hikes. Ueda said earlier that companies are now more likely to pass rising costs on to customers through price increases.

The yen hit 160 per dollar for the first time in 34 years last month. After a meeting earlier this month with Kishida, the central bank governor shifted his tone when speaking about the foreign exchange market to signal more willingness to act if the currency affects inflation.

While the stronger-than-expected growth in service prices will feed into expectations of rate hikes to come, some economists flagged the risk that sharp inflation may end up delaying the timing of the BOJ’s next normalization step, if it delays a turnaround in real wage growth and consumption.

Private spending has now declined for four consecutive quarters, contributing to the economic contraction in the first quarter of the year.

“Considering these factors, I still think the BOJ’s next rate hike will come in October rather than July, as it sticks with a wait-and-see approach,” said Harumi Taguchi, principal economist at S&P Global Market Intelligence.