Japan wholesale prices climb but deflation stubborn

TOKYO (Reuters): Japanese wholesale prices rose at a faster pace than expected in November due to higher energy costs, but a firm yen and weak domestic demand will likely curb price increases ahead, suggesting the economy will continue to struggle with deflation.

 Wholesale prices increased 1.7 percent in November from a year earlier, faster than a median forecast of economists for a 1.5 percent rise, Bank of Japan data showed on Monday.

 Gains in wholesale prices are likely to be temporary, economists say, as uncertainty about Europe's sovereign debt crisis, a strong yen, and sputtering global and domestic demand bode ill for the world-third largest economy.

 “Costs for oil, kerosene and energy are pushing up prices, but now oil prices are edging lower and Japan's economy is sluggish,” said Norio Miyagawa, a senior economist at Mizuho Securities Research & Consulting.

 “The BOJ can provide as much money as it wants, but that won't help end deflation. We have to take measures to close the output gap by easing regulations to encourage more corporate activity.”

 November's rise followed a revised 1.6 percent increase in the year to October.

 From the previous month, wholesale prices rose 0.1 percent, compared with a median forecast for a 0.2 percent fall.

 Overall final goods prices -- the prices of finished products charged to businesses -- declined 0.4 percent in November from a year earlier.

 Domestic final goods prices, which loosely track the consumer price index, dropped 0.7 percent from a year earlier.

 Japan's core consumer prices fell in October for the first time in four months as the strong yen pushed down import prices and energy prices fell.

 The economy emerged from a March earthquake-triggered recession in the third quarter after companies mended supply chains. But analysts forecast growth will slow in the current quarter as the global economy falters and the yen weighs on exports.