Japan’s Corporate Service Prices Fall 2.2%, Fourth Monthly Drop

By Mayumi Otsuma

Feb. 24 (Bloomberg) -- Japan’s corporate service prices fell for a fourth month as commodity costs tumbled and the deepening recession forced companies to cut spending.

The prices businesses pay for services such as transportation and rent declined 2.2 percent in January from a year earlier, the Bank of Japan said today in Tokyo. The median estimate of 10 economists surveyed was for a 2.5 percent drop. Prices decreased 0.9 percent from the previous month.

Advertising agencies and office landlords are charging less as demand weakens, and cheaper oil is reducing the cost of shipping. Japan’s consumer prices probably fell for the first time in more than a year in January, economists predict a report will show this week, as deflation returns to the world’s second-largest economy.

“We look for the corporate service price index to remain depressed by both global factors and domestic factors,” said Kyohei Morita, chief economist as Barclays Capital in Tokyo.

Prices are weakening as the economy shrinks the most in decades. Gross domestic product fell at an annual 12.7 percent pace last quarter, the steepest drop since the 1974 oil shock, as exports collapsed.

Dentsu Inc., Japan’s largest advertising agency, cut its full-year net income forecast by 56 percent this month as clients spent less on marketing. Total advertising expenditure in Japan fell 4.7 percent in 2008, the first decline in five years, Dentsu said yesterday.

Falling Rents

Rents are dropping as office vacancies increase. The average office rent in Tokyo’s five main business districts fell for a fifth month in January, according to Miki Shoji Co., a privately held office brokerage company.

Consumer prices excluding fresh food slipped 0.1 percent in January from a year earlier, the first decline since September 2007, according to the median estimate of 31 economists surveyed by Bloomberg News. The government’s statistics bureau will publish the figures on Feb. 27.

Japan’s wholesale inflation rate dropped last month for the first time in more than five years. Crude oil has lost more than 70 percent its value since exceeding $147 a barrel for the first time on July 11.

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