TOKYO: Japan's wholesale inflation rate hit a fresh 27-year high of 3.9 per cent in March as companies struggled to cope with soaring raw material and energy costs, a report from the central bank showed.

Producer price inflation accelerated from a revised annual rate of 3.6 per cent in February, the Bank of Japan said. It was the strongest rise in corporate goods prices since February 1981.

Market forecasts had been for a rise of 3.5 per cent last month in the index, which tracks the price of goods traded between companies.

Higher prices of imports, such as oil and raw materials, were behind the surge.

Japanese companies, particularly smaller firms, are being squeezed by rising prices of commodities and energy. Sluggish consumer spending and fierce global competition is making it hard for them to pass on the higher costs to customers.

Japan's core inflation rate accelerated to a decade-high 1.0 per cent in February on heightening energy and food costs, the government said last month.

Asia's largest economy has been trying to shake off years of deflation, or falling consumer prices, which hits company profits and discourages spending by consumers, who expect a better deal if they hold off.

But the return of inflation has not been welcomed because it has been driven by higher energy and raw material costs, rather than growth in wages and consumption.

Prices of soft and hard commodities such as wheat, soy, steel and coal have been increasing rapidly across the world amid fast-growing demand in developing economies and growing interest in biofuels in the fight against climate change. - AFP/ac