Japan's Wholesale Inflation Growth Eases as Crude Oil Declines

By Mayumi Otsuma

Oct. 14 (Bloomberg) -- Japan's wholesale inflation rate slowed for a second month, adding to evidence that cost increases driven by oil and commodities have peaked.

Producer prices, the costs companies pay for energy and raw materials, climbed 6.8 percent from a year earlier after a 7.2 percent increase in August, the Bank of Japan said in Tokyo today. The median estimate of 24 economists surveyed by Bloomberg News was for 6.6 percent.

Slower wholesale inflation will provide some respite for companies whose profits have been eroded by soaring energy prices in the past year. That may not mean Japan will be able to dodge a recession as fallout from a global financial crisis becomes a bigger risk for the world's second-largest economy.

``Japan's producer prices seem to have peaked in July,'' said Taisuke Nakamoto, an economist at Dai-Ichi Life Research Institute in Tokyo. ``We will probably observe a drastic slowdown in producer prices in coming months.''

Producer prices fell 0.4 percent in September from August, the second monthly decline.

Crude oil prices have fallen more than a third since exceeding $147 a barrel for the first time on July 11. Soybeans, corn and wheat have slumped after climbing to records this year.

The Bank of Japan's overseas commodity index, which shows changes in costs including oil, steel, copper and wheat, rose 7.9 percent in September from a year earlier, slowing from a 42.1 percent increase in August.

Stronger Yen

``Japan's producer prices are already in a decelerating phase, which will continue for one year or so,'' said Kyohei Morita, chief economist at Barclays Capital in Tokyo. ``We also have to pay attention to the stronger yen's impact on producer prices.''

Japan's currency has risen 6.3 percent against the dollar this month, making imports cheaper. The yen's exchange rate against the dollar averaged 106.75 yen in September, 7 percent stronger than a year earlier, pushing down producer prices by 0.35 percentage point, Morita estimates.

The world's advanced economies next year will grow at the slowest pace since 1982 and inflationary pressures will ease, the International Monetary Fund said this week.

Inflationary pressures ``have started to moderate in a number of countries, partly reflecting a marked decline in energy and other commodity prices,'' central banks of the U.S., Europe and other economies that cut interest rates on Oct. 8 said in a joint statement.

Japan's consumer-price inflation, which has been driven by commodity costs, may be also peaking because of cheaper oil. Core consumer prices, which exclude fresh food, rose 2.4 percent in August from a year earlier, the fastest pace in 11 years.

``Japan's core consumer prices probably peaked in the July- September period and are expected to gradually moderate toward 2009,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities Japan Ltd. in Tokyo.

To contact the reporter on this story: Mayumi Otsuma in Tokyo at motsuma@bloomberg.net