Producer prices fell for a ninth month as oil traded lower than last year's levels and demand for materials waned, the Bank of Japan said Wednesday.
The costs companies pay for energy and unfinished goods fell 7.9 percent in September from a year earlier after sliding a record 8.5 percent, the BOJ said. The median estimate of 27 economists surveyed by Bloomberg News was for a 7.9 percent drop.
While the pace of declines eased because oil prices peaked in July 2008, weak demand from companies for energy and raw materials will weigh on prices, economists said.
A return to the deflation that the economy only shook off in 2005 may weigh on growth as businesses and households cut spending in anticipation that prices will keep falling.
"Deflation caused by the domestic demand shortage will become evident gradually as time passes, and the wave of price declines will spread," said Kyohei Morita, chief economist at Barclays Capital in Tokyo.
Producer prices rose 0.1 percent in September from August, the central bank said.