May 14, 2007 / 10:12 AM / 12 years ago

Mayonnaise, rice bowl costs hint at Japan inflation

TOKYO, May 14 (Reuters) - Japanese food and service prices are creeping up, a possible sign that companies are finally starting to pass on higher raw material costs to customers despite overall tame consumer inflation, analysts say.

Consumers accustomed to nearly a decade of deflation were stunned when food maker Q.P. Corp. (2809.T) raised mayonnaise prices for the first time in 17 years.

Some supermarkets are selling orange juice at higher prices than before, while several restaurants are charging more for their rice bowls topped with meat and vegetables.

Rising raw material costs are partly behind such increases, as was evident from the Bank of Japan’s wholesale price data released on Monday.

The corporate goods price index (CGPI), which tracks trends in wholesale prices of goods, rose 2.2 percent in April from a year earlier.

That was much higher than a consensus forecast for a 1.8 percent increase, with the gain reflecting rising nonferrous metal and crude oil prices.

Prices of processed food also rose 1.3 percent from a year earlier, indicating growing upward pressure from higher raw material prices in the global market.

“The accelerated rise in wholesale prices shows that companies are starting to add rising raw material and energy costs to their final goods prices,” said Mamoru Yamazaki, chief economist at RBS Securities.

Service prices have not risen much so far but there are signs of this changing, with some taxi companies recently applying for government approval to raise fares.

Some economists, however, are sceptical of whether such upward price pressure would lead to significant rises in consumer prices, a key price gauge closely watched by the Bank of Japan.

Seiji Shiraishi, chief Japan economist at HSBC Securities, said the April rise in wholesale prices was exaggerated by market moves like rising commodity prices and a weak yen.

When excluding such factors, the rise in overall prices has not accelerated much, he said.

Japanese consumer prices fell 0.3 percent in March from a year earlier and analysts as well as BOJ policymakers expect them to remain weak for several months.

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