Japanese wholesale prices rose slightly more than expected in June from a year earlier to hit a fresh 27-year high on surging oil and commodity prices, adding gloom to firms facing dwindling profit margins.
Wholesale price inflation in Japan has accelerated in the past few months but companies have found it hard to pass on rising costs to consumers, keeping annual core inflation relatively low at 1.5 percent.
Thursday's data did little to alter the prevailing view that the Bank of Japan (BOJ) will sit tight on interest rates for a while as it is concerned more about slowing economic growth than the risk of runaway inflation.
"We still think that the recent rises in price data are unlikely to prompt the Bank of Japan to raise rates," said Junko Nishioka, an economist at RBS Securities. "The BOJ is focused more on the negative impact of the price rises on demand, rather than the possibility of continuous inflation pressure."
Financial markets showed little reaction to the data.
Japanese government bond futures rose to a two-month high, but that was largely after renewed credit jitters knocked Tokyo shares and boosted the safe-haven appeal of government debt.
Wholesale prices, as measured by the corporate goods price index (CGPI), rose 5.6 percent in June from a year earlier, above a market consensus forecast for a 5.3 percent rise, BOJ data showed.
The rise was mainly led by the surge in crude oil prices, followed by prices of raw materials for steel and crops, a BOJ official said.
That followed a revised 4.8 percent rise in May, marking the biggest jump since a 5.7 percent rise in February 1981, when Japan was reeling from the aftermath of the second oil shock.
Compared with the previous month, wholesale prices were up 0.8 percent in June, against an expected 0.6 percent rise.
The central bank has identified rising raw material costs as the main culprit behind a slowdown in Japan's economy.
The BOJ's quarterly tankan corporate survey showed last week that confidence among big Japanese manufacturers sank to a five-year low in June, hit hard by higher commodity price hurting bottom lines amid worries about a global slowdown.
No rate move is expected when the BOJ's policy board meets on July 14-15, with many market players expecting the central bank to stand pat on policy at least for the rest of this year.
A spike in crude and other raw material prices has inflated Japan's import bills as the country must import the bulk of oil and commodities it needs, weighing on the current account surplus in recent months.
Separate government data showed that the nation's current account surplus shrank 5.9 percent in May from the same month a year earlier, compared with a 9.7 percent fall expected by financial markets.
Japan's economy logged solid growth for a second straight quarter in January-March thanks largely to robust exports.
But economists polled by Reuters expected the economy to have shrunk 0.1 percent in April-June, with capital spending seen in a downtrend as corporate profits fall while exports show signs of losing steam.