Japan wholesale prices rise the most in 5 months, put squeeze on corp profits

By Tetsushi Kajimoto

TOKYO (Reuters) -Japanese corporate goods prices grew the most in five months in September, Bank of Japan data showed on Thursday, highlighting the squeeze on business profits from persistently strong wholesale inflation.

The 9.7% year-on-year rise in the corporate goods price index (CGPI), which measures the price companies charge each other for their goods and services, was much bigger than a median market forecast for a 8.8% increase, BOJ data showed. [JPCGPY=ECI]

It was the biggest annual increase since a 9.8% rise registered in April, underlining the stiff margin pressure facing businesses as many of them struggle to pass on the costs to consumers.

A weak yen, which inflates the cost of imports, has exacerbated already high wholesale inflation from a global surge in commodity prices.

The yen-based import price index rose 48.0% year-on-year in September, after a revised 43.2 in August and a revised 49.2% in July, the data showed.

That combination has driven the index, at 116.3, to a record high since the survey began in 1960. Electricity bills for business and urban gas utility were the main contributors to the uptick in costs, reflecting rises in fuel costs for the second quarter.

The month-on-month input cost pressure also remained strong, with wholesale prices up 0.7% in September from August, when it increased 0.4%.

HOUSEHOLD INFLATION EXPECTATIONS

After failing to achieve the 2% inflation goal for nearly a decade, the BOJ is finally seeing consumer inflation exceeding 2% but for the wrong reasons - soaring fuel and raw material costs largely blamed on the Ukraine crisis.

In a sign cost-push inflation may not be sustainable, however, a separate BOJ survey showed on Thursday household inflation expectations turned somewhat weaker.

The ratio of households expecting prices to be higher a year from now stood at 85.7% in September, down from 87.1% in June, which was the highest level since June 2008, the quarterly BOJ survey showed.

The ratio of households expecting prices to be higher in five years was 78.3% in September, down from 79.8% in June.

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Japan's core consumer inflation hit 2.8% in August, the fastest annual pace in 21 years, underscoring the rising cost of living with wage growth lagging far behind.

However, given the moderate consumer inflation rate compared with many other advanced nations, the central bank has vowed to keep interest rates ultra-low to revive a fragile economy, remaining an outlier in a global tide of monetary policy tightening.