Wholesale inflation slowed for a third month as the global recession lowered the cost of oil and commodities, adding to the threat of a return of deflation later this year.
Producer prices, the costs companies pay for energy and raw materials, climbed 1.1 percent in December from a year earlier after a 2.8 percent increase in November, the Bank of Japan said in Tokyo Thursday. The median estimate of 29 economists surveyed by Bloomberg News was for an 0.8 percent rise.
The slump in commodities, coupled with a deepening recession, may herald a return of deflation that plagued Japan for almost a decade until 2005, economists say. The yen's 18 percent advance against the dollar since September has made imports cheaper, adding to downward pressure on producer prices.
"Deflation will probably re-emerge as a problem for the Japanese economy in mid-2009," said Mari Iwashita, chief market economist at Daiwa Securities SMBC Co. in Tokyo. "It will remain difficult to forecast when the global economy will pick up and start to lift prices."
Producer prices fell 1.2 percent in December from November, when they declined 1.9 percent, the BOJ said Thursday.
Another report released the same day showed machinery orders declined by a record amount, falling 16.2 percent, as businesses cut spending.