Friday, August 24, 2007

Japan Corporate Service Prices Rise Most in 15 Years

- Japan's corporate service prices rose at the fastest pace in more than 15 years, a sign that inflation is taking hold in the world's second-largest economy.

The prices companies pay for services such as rents and transportation climbed 1.6 percent in July from a year earlier, the Bank of Japan said in Tokyo today.

Higher costs of corporate services, oil and materials may prompt businesses to increase retail prices. Bank of Japan Governor Toshihiko Fukui yesterday repeated his argument that consumer prices -- which have fallen since February -- will resume rising in the long term as the economy expands.

``With oil and raw material costs staying at high levels, companies can't absorb all of them,'' said Mamoru Yamazaki, chief Japan economist at RBS Securities Japan Ltd. in Tokyo. ``Upward pressure for consumer prices is mounting.''

Rising energy costs pushed up road-freight and shipping fees last month, the central bank said in the report. Office rents also climbed, and demand for television advertisements increased ahead of the country's July 29 Upper House election.

The price of Dubai crude oil, the benchmark for Asia's main refiners, has risen 17 percent this year. A Bank of Japan index of 16 commodities advanced 7.2 percent in July from a year earlier, the fastest pace in four months.

Consumer Prices

Companies have been absorbing these higher costs. Core consumer prices probably fell 0.1 percent in July from a year earlier, a sixth monthly drop, according to the median estimate of 15 economists surveyed by Bloomberg News. The report is scheduled for release on Aug. 31 at 8:30 a.m. in Tokyo.

The central bank yesterday held the key overnight lending rate unchanged at 0.5 percent in an 8-1 vote after a global credit rout clouded the outlook for economic growth.

Fukui said keeping borrowing costs too low compared with the economy's strength may spur risky investments and the bank will make an appropriate policy judgment by examining ensuing data and global financial-market movements.

Fallout from the collapse of the U.S. subprime mortgage market is ``not the type of problem that will go away in a few weeks,'' he said.

``Governor Fukui said it will take a while before financial markets calm down so it'll probably be difficult for the central bank to raise rates in September,'' said Mari Iwashita, a senior market economist at Daiwa SMBC Securities in Tokyo. ``The most likely timing seems to be the Oct. 10-11 meeting.''

Investors see a 37 percent chance of a September rate increase, according to Credit Suisse Group calculations based on interest payments.

Corporate service prices rose 0.1 percent in July from June, a second monthly gain, the central bank said.

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