Japan's annual wholesale price inflation beat market expectations in June to hit a fresh 27-year high on surging oil and commodity prices, adding gloom to firms suffering from dwindling profit margins.
Wholesale price increases in Japan have accelerated in recent months but companies have found it hard to pass on rising costs to consumers, keeping annual core inflation relatively low at 1.5 per cent.
Rising costs have made the Bank of Japan (BOJ) more wary about the risk of an economic slowdown than inflationary pressures, reinforcing the market view that the central bank will sit tight on interest rates for a while.
Wholesale prices, as measured by the corporate goods price index (CGPI), rose 5.6 per cent in June from a year earlier, above a market consensus forecast for a 5.3 per cent rise, BOJ data showed.
That followed a revised 4.8 per cent rise in May, and marked the biggest jump since a 5.7 per cent rise in February 1981, when Japan was reeling from the aftermath of the second oil shock.
The rise was led by higher prices of oil and coal products, iron and steel, and processed foods, while import prices jumped 30.3 per cent on a contract currency basis to mark the fastest rise in 28 years, a BOJ official said.
Wholesale price increases in Japan have accelerated in recent months but companies have found it hard to pass on rising costs to consumers, keeping annual core inflation relatively low at 1.5 per cent.
Rising costs have made the Bank of Japan (BOJ) more wary about the risk of an economic slowdown than inflationary pressures, reinforcing the market view that the central bank will sit tight on interest rates for a while.
Wholesale prices, as measured by the corporate goods price index (CGPI), rose 5.6 per cent in June from a year earlier, above a market consensus forecast for a 5.3 per cent rise, BOJ data showed.
That followed a revised 4.8 per cent rise in May, and marked the biggest jump since a 5.7 per cent rise in February 1981, when Japan was reeling from the aftermath of the second oil shock.
The rise was led by higher prices of oil and coal products, iron and steel, and processed foods, while import prices jumped 30.3 per cent on a contract currency basis to mark the fastest rise in 28 years, a BOJ official said.
PASSING ON HAS BEEN MINIMAL
The central bank has blamed rising raw material costs for a slowdown in the world's No.2 economy, which is in its longest growth cycle in the postwar era but faces downside risks.
The BOJ's quarterly tankan corporate survey showed last week that confidence among big Japanese manufacturers sank to a five-year low in June, hit hard by higher commodity price hurting bottom lines amid worries about a global slowdown.
No rate move is expected when the BOJ's policy board meets on July 14-15, with many market players expecting the central bank to stand pat on policy at least for the rest of this year.
A monthly survey by the Economic Planning Association -- an affiliate of the Cabinet Office -- showed about 60 per cent of 36 economists polled expected the BOJ to wait at least until June 2009 to raise rates, while only one bet on a hike this year.
Domestic raw materials prices rose 18.4 per cent to hit a 28-year high, compared with a 3.2 per cent rise in domestic final consumer goods prices -- watched by economists as they loosely track consumer prices -- which hit the fastest pace in 27 years.
"Whether companies pass on rising costs more to consumers will largely depend on the strength of the Japanese economy."
A spike in crude and other raw material prices has inflated Japan's import bills, weighing on the current account surplus, as the country imports the bulk of oil and commodities it needs.
Separate government data showed that the current account surplus shrank 5.9 per cent in May from a year earlier, against a 9.7 per cent fall expected by economists but marking the third straight month of declines mainly due to a narrowing of the income surplus.
Japan's economy logged solid growth for a second straight quarter in January-March thanks largely to robust exports, but economists polled by Reuters expected the economy to have shrunk 0.1 per cent in April-June.
Economists in the planning association survey said the economy probably contracted by an annual clip of 0.74 per cent in the second quarter, with annualised growth expected to stay below 2 per cent until the final quarter of 2009.
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