Japan's consumer prices rose at the fastest pace in a decade in March as companies foisted higher costs of energy and grains onto households to protect profits.

Core consumer prices, which exclude fruit, fish and vegetables, climbed 1.2 percent from a year earlier after gaining 1 percent in February, the Internal Affairs and Communications Ministry said Friday.

That matched the median estimate of 39 economists surveyed by Bloomberg News.

Costlier oil and commodities are squeezing companies and households, smothering growth in the world's second-largest economy just as a U.S. slowdown hits the country's export-led expansion. The Bank of Japan may discard language calling for higher interest rates in its twice-yearly outlook next week even as it raises the inflation forecast.

"Inflation spurred by rising costs will keep discouraging companies and consumers from spending," said Takehiro Sato, chief Japan economist at Morgan Stanley in Tokyo. "The BOJ probably thinks now's not the time to push forward with a rate-hike campaign."

Food accounted for a third of the gains in core prices, and energy contributed more than half. Excluding food and energy, prices rose 0.1 percent, the first increase since August 1998.

While the prospect of slower growth may prompt the BOJ to keep borrowing costs on hold this year, faster inflation makes a cut less likely. Expectations that the bank will lower the benchmark rate from 0.5 percent evaporated in the past month.

Investors see a 56 percent chance of a rate increase by December compared with 38 percent before Friday's report, according to JPMorgan Chase & Co. calculations. As recently as March 20, traders priced in a 71 percent likelihood of a cut. Goldman Sachs Group Inc. this week dropped its prediction for a reduction this year.

The BOJ will probably lower its growth forecast from 2.1 percent for the year ending