Japan’s wholesale inflation hits 7.1-pct in July 2008

TOKYO, August 12, 2008 (AFP) – Japanese wholesale inflation hit a 27-year high of 7.1 percent in July on soaring commodity costs, the central bank said Tuesday, adding to gloom about the health of Asia’s largest economy.

The fresh signs of pain in the manufacturing sector came on the eve of figures expected to show that Japan’s economy shrank in the second quarter of 2008, teetering on the brink of recession.

It was the sharpest increase in the prices of goods traded between companies since an 8.1 percent rise in January 1981, when the nation was still reeling from the second oil crisis, the Bank of Japan said.

Market forecasts had been for a much smaller increase of 5.8 percent in July, after a revised rise of 5.7 percent in June.

Companies are struggling to pass on higher oil and material costs to consumers due to weak domestic demand, said Hiroshi Watanabe, an economist at the Daiwa Institute of Research.

“If they raise prices, they may see demand drop. Or they can opt for a higher market share with no price hikes, which only large corporations can survive. They are in trouble either way,” he said.

Business investment has been a key driver of Japan’s recovery from recession in the 1990s,