China slowdown hits Japan wholesale prices
Low raw material costs will add to woes of BOJ as it strives to achieve 2% inflation target
Tokyo
JAPANESE wholesale prices fell 2.4 per cent in the year to June to mark the third straight month of declines, data showed on Friday, as soft demand in China drove down commodities markets.
While declines in raw material costs benefit Japanese manufacturers, they will keep life difficult for the Bank of Japan (BOJ) as it strives to accelerate consumer inflation towards its ambitious 2 per cent target, analysts say.
The drop in the corporate goods price index, which measures the price companies charge each other for their goods and services, roughly matched a median market forecast for a 2.3 per cent decrease and followed a 2.2 per cent fall in May.
Excluding the effect of last year's sales tax hike, wholesale prices fell 2.5 per cent in the year to June, the BOJ data showed. That marked the eighth straight month of declines and the biggest drop since January.
"If concerns over China's economy aren't dispelled, the commodities market correction may be prolonged," said Makoto Watanabe, an economist at BNP Paribas Securities in Tokyo. "That may prevent wholesale prices from rising much."
If China's market rout boosts appetite for the safe-haven yen, that will stall declines in the currency that had pushed up import costs and helped accelerate inflation in Japan up till now, Mr Watanabe said.
Wholesale prices fell 0.2 per cent in June from May after increasing for three months, reflecting a supply glut of commodities caused by China's economic slowdown.
Electricity bills also fell as utilities charged less reflecting the decline in fuel prices, the data showed.
Wholesale inflation tends to be a leading indicator of consumer inflation, which the BOJ targets in guiding policy.
Core consumer inflation has ground to a halt as the effect of slumping oil prices offset rising food prices, driven mostly by a weak yen that boosts the cost of imports. The BOJ says consumer inflation will hit its 2 per cent target sometime by September next year as the economy recovers, though many analysts doubt prices will rise so quickly.
"Some food prices are rising due to the weak yen, but conditions aren't in place for core consumer inflation to accelerate," said Toru Suehiro, senior market economist at Mizuho Securities. Reuters
