Prices businesses pay for services decline

Corporate service prices fell for the first time in two years in October as oil costs dropped, adding to evidence inflationary pressure is easing.

The prices businesses pay for services declined 1.4 percent from a year earlier after gaining 0.1 percent in September, the Bank of Japan said Tuesday. The October drop, the first since July 2006, was also the steepest in five years.

The central bank said last week that inflation will keep moderating as companies adjust prices to reflect cheaper oil and food. A stronger yen and a slump in commodity markets are also lowering Japans import bill, further weakening service prices.

Corporate service prices will come under increasing downward pressure in the coming months, said Kyohei Morita, chief economist at Barclays Capital in Tokyo. Month on month, prices dropped 1.2 percent, matching the fastest decline since 1985, when the BOJ started taking surveys.

Crude oil has lost more than 60 percent its value since exceeding $147 a barrel for the first time on July 11. Soybeans, corn and wheat have also slumped as the global slowdown reduced demand, while the yen has risen 9.7 percent against the dollar since September.

Japan may show more signs of slowing inflation or even deflation next year, economists said.

Consumer prices excluding fresh food rose 1.9 percent in October from a year earlier, slowing from 2.3 percent in September, according to the median estimate of 33 economists.

There is a high probability the economy will slip into deflation in the third quarter of 2009 as core consumer prices turn negative, Morita said. The government will release the figures Friday.