UPDATE 2-Japan wholesale inflation jumps to highest in year
(Recasts, adds output gap, byline)
TOKYO, Dec 12 (Reuters) - A spike in oil prices boosted Japanese wholesale inflation to its highest in more than a year, but that hardly helped the central bank's case for a rate hike as rising costs threaten to strain profits at Japanese companies.
The price data suggests that consumer prices, too, will likely rise in coming months as firms pass on part of their rising costs, after a long period of tame advances.
But most economists said consumer prices are unlikely to accelerate sharply in view of limited wage growth.
"The uptrend in wholesale price inflation is strengthening," said Takehito Sato, an economist at Morgan Stanley. "That could worsen terms of trade of Japanese firms, especially at small and mid-sized ones."
The corporate goods price index (CGPI), which tracks wholesale prices, rose 2.3 percent in November from a year earlier, above economists' median forecast of a 2.1 percent rise and the sharpest annual jump since September 2006.
Economists worry that recent rises in raw materials and food prices will squeeze profits at many companies, which are reluctant to pass on rising costs to consumers, for fear of scaring away already wary consumers.
Japanese financial markets showed muted reaction to the data, but Tokyo share prices and Japanese government bond yields fell after a sharp drop in U.S. shares that followed a disappointing U.S. rate cut on Tuesday, while expectations of a Bank of Japan rate hike retreated further. [JP/] [.T]
Swap contracts MIRS6 on the overnight call rate, the BOJ's main policy rate, are pricing in less than a 10 percent chance of a rate hike by March, when BOJ Governor Toshihiko Fukui retires, down from around 20 percent late on Tuesday.
CPI SEEN JUMPING
Part of the jump in oil prices will be passed on to consumers. Azusa Kato, an economist at BNP Paribas, said the wholesale price data suggests the core CPI will likely rise 0.4 to 0.6 percent from a year earlier in November and December. Morgan Stanley said the core CPI will rise at least 0.3 percent in November.
Either scenario would be much higher than the 0.1 percent rise in October, which followed eight straight months of decline.
Still, rising prices are unlikely to give the BOJ much ammunition to raise rates.
Not only is the credit crisis in the United States and Europe seen as tying the hands of the BOJ, but domestic growth prospects are also looking less solid.
Housing starts have plunged because of tighter regulations introduced after a building scandal, with no sign of a recovery. Continued...
