Economic growth in Japan is at risk as soaring costs of raw materials squeeze profits, forcing companies to cut spending and wages, economists said.
Growing demand in China and other emerging economies is causing higher fuel and commodity prices worldwide, threatening to fan inflation in Japan and elsewhere. China's economy, which may overtake Germany's as the world's third-biggest this year, expanded 10.6 percent last quarter and inflation was close to the fastest pace in 11 years, according to reports released Wednesday.
Rising materials costs drove Japan's wholesale inflation rate in March to its highest in 27 years, hurting profits at companies including Nippon Steel Corp. The Bank of Japan cited surging energy and materials prices as the reason for cutting its assessment of the domestic economy last week.
"Japan's biggest import product from China right now is inflation," said Kyohei Morita, chief economist at Barclays Capital Japan Ltd. "If Japanese companies reflect rising costs of materials in their consumer goods, that will directly hurt households, who haven't seen much wage growth."
Nippon Steel, the world's second-biggest maker of the alloy, agreed last week to pay BHP Billiton Ltd. and Mitsubishi Corp. three times more for coking coal this year. Crude oil surged to a record $115.21 a barrel Thursday.
Some companies are already foisting higher costs of oil and food onto households.
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