Producer prices fell for the 10th straight month in October, underscoring the risk that deflation could undermine the economic recovery.
The costs that companies pay for energy and unfinished goods tumbled 6.7 percent from a year earlier after sliding a revised 8 percent in September, the Bank of Japan said Thursday. The median estimate in a survey of 23 economists was for a 6 percent drop.
The decline in costs shows how the export-driven recovery has failed to spur demand at home. The BOJ forecast last month that producer prices will continue to slide through the year starting in April 2011 because weak economic growth will subdue corporate demand for oil, steel and other raw materials.
Japan's producer prices "have moved into a new phase of 'homemade' deflation linked to a lack of domestic demand," said Kyohei Morita, chief economist at Barclays Capital in Tokyo. "Deflation may become less speedy but could also become more sticky."
Prices fell 0.7 percent from September to October, the report showed.
A return to the deflation that Japan only shook off in 2005 may weigh on growth as businesses and households cut spending in anticipation that prices will keep falling.
BOJ Deputy Gov. Hirohide Yamaguchi told the Diet last week that the central bank sees little risk that falling prices will dent economic growth and hamper its return to a sustainable expansionary path.