Japan Producer Prices Fall at Fastest Pace Since 2002

By Mayumi Otsuma

April 13 (Bloomberg) -- Japan’s wholesale prices fell at the fastest pace in almost seven years as the global slump deepened.

Producer prices, the costs companies pay for energy and raw materials, sank 2.2 percent in March from a year earlier, the biggest slide since May 2002, the Bank of Japan said in Tokyo today. That compares with a median estimate of 27 economists surveyed by Bloomberg News for a 1.8 percent decline.

The Bank of Japan’s quarterly Tankan survey this month showed manufacturers expect the costs they pay for goods and materials to fall to the lowest level in seven years. Central bank Governor Masaaki Shirakawa said last week policy makers must carefully watch the risk that inflationary expectations by companies and consumers would weaken.

“The pace of declines in wholesale prices is expected to gather momentum toward the middle of this year,” said Taisuke Nakamoto, an economist at the Dai-Ichi Life Research Institute in Tokyo. “Makers of steel, food, electricity, gas and vehicles are highly likely to slash their prices in coming months.”

Prices tumbled a revised 1.6 percent in February compared with the same month a year earlier. They fell 0.2 percent in March from February, when they dropped a revised 0.5 percent, the central bank said.

The Bank of Japan’s overseas commodity index, which shows changes in costs including oil, steel, copper and wheat, slid 49.3 percent in March.

Lower Grain Prices

Japan’s agriculture ministry lowered prices of the grain sold to processors by 14.8 percent on average this month, the first drop in three years, after import costs fell on a higher yen and a slump in overseas markets. The country imports about 90 percent of its wheat needs.

Shikishima Baking Co., the country’s second-largest bakery, plans to cut bread prices in May to reflect a drop in wheat costs. Takashimaya Co., a department-store operator, reduced retail prices of bread this month.

Japan’s wholesale inflation rose to the fastest in almost three decades in August and has since slowed every month. Crude oil has lost more than two-thirds of its value since peaking at $147.27 in July. Soybeans, corn and wheat costs have dropped after climbing to records last year.

Price declines are spreading in the world’s second-largest economy. Corporate service prices, the costs businesses pay for services such as transportation and rent, fell at the steepest pace in February in seven years.

A deteriorating job market will probably cause consumers to spend less and prices to decline further, economists say. The jobless rate surged to a three-year high in February and wages slid for a ninth month.

Core consumer prices, which exclude fresh food, will fall in March, the first decline since September 2007, according to Hiroaki Muto, a senior economist at Sumitomo Mitsui Asset & Management Co. in Tokyo.

“On top of energy cost declines, falling wheat costs will also lower prices,’ ‘ Muto said.

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