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Japan's accelerating inflation may prompt households to cut spending rather than buy more to beat further price increases, a central bank survey showed.

A record 88.9 percent of consumers expect prices to climb this year and an unprecedented 58.7 percent said they will cut spending, the Bank of Japan said in a quarterly report today. Both levels are the highest since the bank started asking the questions about inflation and purchasing in 1997.

“Japan's consumers are used to deflation, not inflation,'' said Kyohei Morita, chief economist at Barclays Capital in Tokyo. “Consumers are suffering because of rising prices and household spending is going to stall.''

Household spending fell at the fastest pace since September 2006 in May, when inflation surged to a decade high. Prices of most frequently purchased goods from milk to eggs climbed 2.4 percent in May, outpacing 0.2 percent wage growth, which was the slowest in five months.

“We are highly skeptical as to whether food price inflation can trigger frontloaded consumption behavior, as food is generally not an area where consumers hoard,'' said Takehiro Sato, chief economist at Morgan Stanley in Tokyo.

Consumers expect prices to rise 7 percent in the next 12 months and households felt prices climbed 10 percent from a year ago, according to median estimates in today's survey. Both numbers are a record high.

Consumer Prices

Core consumer prices, which exclude fresh fruit, fish and vegetables, rose 1.5 percent in May, the fastest pace since 1998, as companies passed on higher energy and commodity costs payday loans online.

“The impact on consumer spending should not be too dramatic,'' Richard Jerram, chief Japan economist at Macquarie Securities Ltd. in Tokyo, wrote in a note. “Consumers will find that their monthly wages (which have also picked up) will go further than they expect.''

Respondents expect land prices to fall 7.4 percent. That's the first time they have anticipated a drop since March 2004.

Gains in Japan's land prices will probably slow in the next few years as investors become more cautious after the subprime mortgage market collapsed, CB Richard Ellis, the world's biggest commercial property brokerage, said this week.

“This negative sentiment on land prices helps to explain the poor housing starts data in recent months,'' Jerram wrote. “People do not want to buy an asset they expect to depreciate in value.''

A recovery in housing starts, which slumped last year because of stricter building-permit rules, has lost steam since January as developers raised prices to meet higher costs of steel and cement, sapping demand.

Today's Bank of Japan survey took place from May 15 to June 10. The bank asked 4,000 people and received 2,378 responses.

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