Japan's Wholesale Inflation Accelerates on Oil Costs (Update1)

By Mayumi Otsuma


Nov. 12 (Bloomberg) -- Japan's wholesale inflation accelerated in October as surging raw-materials costs prompted Kirin Holdings Co. and Daio Paper Corp. to raise prices.

The producer-price index climbed 2.4 percent from a year earlier, extending more than three years of gains after a 1.7 percent advance in September, the Bank of Japan said in Tokyo today. The median forecast of 31 economists surveyed by Bloomberg News was for 2.3 percent.

Companies are increasing prices of beer, noodles and toilet paper as oil approaches $100 a barrel and grains and non-ferrous metals become more expensive because of global demand. Still, consumer prices have failed to rise this year as competition among retailers makes it hard to pass costs on to households.

``Core consumer prices will probably resume rising in October or November at the latest, partly buoyed by oil prices,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities in Tokyo. ``Then price gains will gradually pick up momentum as more companies start passing on costs.''

The yen traded at 110.65 per dollar at 9:01 a.m. in Tokyo from 110.63 before the report was published.

Consumer prices excluding fresh food fell 0.1 percent in September, an eighth monthly drop.

Kirin, Japan's biggest brewer, last month said it will raise beer prices for the first time in 17 years to cover the higher cost of brewing malt and aluminum. The price of malt has more than doubled and aluminum for cans has risen about 30 percent in the past year, Kirin said.

Toilet Paper

Daio Paper this month raised wholesale prices of tissue and toilet paper by about 15 percent, the second increase this year, citing higher costs of oil and wood chips.

The central bank's overseas commodity index of 16 raw materials including crude oil, nonferrous metals and steel climbed 2.6 percent in October from a year earlier.

Japan's regular gasoline prices rose to a record 149.9 yen a liter ($5.04 a gallon) on Nov. 7. Prices soared about 5 percent in a week.

Central bank Governor Toshihiko Fukui said this month that reports of price increases of gasoline and daily goods are leading consumers to expect higher prices. He also said profits of small businesses are being eroded as they absorb the higher costs, and that's keeping the lid on wages.

Small Businesses

``It's true that small businesses are having more difficulty passing through higher oil and other costs'' than large companies, Fukui said on Oct. 31. ``We understand their difficulty is weakening the transfer of incomes from the improving corporate sector to households.''

Larger companies ``have pricing power and more room to trim costs, as well as the ability to ask their subcontractors to keep prices unchanged,'' said Naoki Iizuka, a senior economist at Mizuho Securities in Tokyo.

From a month earlier, producer prices rose 0.3 percent in October from a 0.1 percent decline in September, today's report showed.

Wholesale inflation was probably tempered by a drop in prices of construction materials as housing investment tumbled, Iizuka said. Japan's housing starts plunged 44 percent to the lowest level in four decades in September, as stricter rules made it harder to obtain building permits, causing delays.

``Many companies in the housing industry are small, and the building-permit fiasco is adding to concerns about their weakness,'' Iizuka said.