By Leika Kihara

TOKYO (Reuters – Japan’s wholesale inflation accelerated in February on the back of rising fuel costs. It is a sign that inflationary pressures have been growing even before the Ukraine crisis triggered a large-based increase in commodity prices.

Analysts predict that the recent spike in commodity prices due to war, ranging from metals and oil to grains, will continue to push up wholesale prices. This is a new hit on Japan’s resource-poor economic system, heavily dependent upon imported raw materials.

Takumi Takui Tsunoda from Shinkin Central Bank Research Institute, senior economist said, “Even if war ends in Ukraine, sanctions against Russia won’t be lifted and prices will stay high primarily because of fuel.”

He stated that Japan is facing rising inflationary pressures, which will add to the pain of Japan’s consumer, already weaker than Western economies. This could hinder Japan’s recovery.

According to Bank of Japan (BOJ data on Thurday), the corporate goods prices index (CGPI), which shows how companies price each other’s goods, jumped 9.3% between a year before. It is now the fastest pace in a single year since 1981 when comparable data were made public.

This rise was higher than market expectations of 8.7% and was driven by an increase in fuel prices, which jumped 34.2%. With 110.7 in February, the index reached its highest level since 1985.

War in Ukraine caused a new spike in commodity and fuel prices. This will push inflation towards the BOJ’s target of 2% in the coming months, but it also impacts the fragile economic recovery.

Retailers and households may be affected by the increase in raw material prices over the course of most of this year. This is because there has been a delay as raw material price rises pass through to consumers.

A BOJ official stated that domestic wheat prices are expected to rise from July due to the war-driven increase in wheat prices. However, utility bills will go up from September according to a briefing.

Japan is experiencing rising energy prices, which puts pressure on its economy. Japan will likely see its growth slow to a halt in the fourth quarter due to coronavirus supply interruptions and curbs to consumption.