Japan’s wholesale prices post fastest decline in 7-years

It was the steepest year-on-year drop since May 2002 and followed declines of 1.6 percent in February and 0.7 percent in January."Companies are in tough competition to cut prices due to weak consumer sentiment," said Hideyuki Araki, economist at the Resona Research Institute. "Consumers are now worried about their jobs or pay cuts. It's natural that they want cheaper goods." Lower energy costs contributed to last month's drop, the central bank said.But the fall in prices should slow as raw material costs have stopped plunging and the government's planned 15.4-trillion-yen ($150 billion) stimulus spending should support domestic demand, Araki said.Japan, the world's second-largest economy, was stuck in a deflationary spiral for years after its asset price bubble burst in the early 1990s, prompting the central bank to slash interest rates to almost zero.

Annual wholesale inflation surged to more than seven percent last August on the back of higher oil and material costs, but has since evaporated.Consumer price inflation has also slowed to zero and the Bank of Japan has forecast two years of deflation, following a slump in exports that has tipped the country into its worst economic crisis since World War II.Compared with the previous month, wholesale prices were down 0.2 percent in March, following a fall of 0.5 percent in February, it estimated.