8 October 2002, 08:21  Japan Sept. Wholesale Prices Unchanged From August

/www.bloomberg.com/ By Daisuke Takato
Tokyo, Oct. 8 (Bloomberg) -- Japanese wholesale prices were unchanged in September as a slowing economy forced utilities such as Kansai Electric Power Co. to cut rates.
Domestic wholesale prices, which fell a revised 0.1 percent in August, haven't risen in five months. From a year earlier, domestic wholesale prices fell 0.9 percent in September, the 24th straight drop, a Bank of Japan report showed today.
Falling prices erode company earnings and inflate the value of debt, sapping growth. Prices probably won't start rising soon as Japan's recovery from the third recession in a decade is undermined by three months of declining exports, economists said.
``Deflation will continue as the economy isn't very strong,'' said Masaki Kuwahara, an economist at Nomura Research Institute. ``The drop in wholesale prices may have eased in the last several months, but the slowdown hasn't spread to consumer prices.''
Nationwide consumer prices excluding fresh foods, which the central bank watches to set monetary policy, haven't risen since April 1998 from year-earlier levels.
Kansai Electric, Japan's second-largest power producer, and five other Japanese utilities cut electricity prices by more than 5 percent last month amid increased competition and a demand slump.
Electric power, gas and water prices and electrical machinery prices were the biggest contributors to today's drop. Prices of iron, steel and edible agricultural, fishery and livestock goods rose
. Four years of falling prices are putting pressure on the government to take action. Chief Cabinet Secretary Yasuo Fukuda told reporters yesterday the government is ``aiming to draw up some anti-deflation measures by the end of this month.''
Leading Index
Japan's economy grew 0.6 percent in the second quarter, the first expansion in more than a year. The recovery may be short- lived, a report yesterday suggested.
Japan's index of leading economic indicators fell to a level that predicts the world's second-largest economy will shrink as soon as November.
The leading index -- which includes job offers, machinery orders and other measures of future activity -- dropped to 44.4 percent in August from 70 percent in July. It fell below the 50 percent level for the first time in eight months, indicating a contraction in three to six months.

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