Japan's consumer prices rose at the fastest pace in a decade in June, discouraging consumer spending and slowing economic growth.

Core prices, which exclude fruit, fish and vegetables, climbed 1.9 percent from a year earlier after increasing 1.5 percent in May, the statistics bureau said today in Tokyo.

The Bank of Japan lowered its growth forecast last week, saying record commodity costs are prompting companies and individuals to cut spending.

Central bank officials probably won't raise interest rates even if inflation exceeds 2 percent, the higher end of their range for price stability, because higher costs are crimping the expansion.

"Core prices will exceed the range's higher end soon — it's just a matter of time," said Masaaki Kanno, chief economist at JPMorgan Securities Japan Co. and a former Bank of Japan official.

"Even so, there's little chance for the central bank to raise rates because wages are barely growing and price gains aren't spreading to the overall economy."

Policy board members consider prices to be stable at between zero and 2 percent growth. The range isn't a binding target.

Core prices in Tokyo, a harbinger of nationwide inflation, have climbed 1.6 percent in July from a year earlier, also the steepest gain in 10 years. They had increased 1.3 percent in June.

Record gasoline prices and rising food costs sent consumer sentiment plunging last month to its lowest level in at least 26 years. Households reduced spending for a third straight month in May as prices of daily necessities climbed 2.4 percent, three times the pace of wage growth.

Slower consumption and exports are probably what caused the economy to shrink last quarter, economists surveyed by Bloomberg News said last month.

Japan imports more than 60 percent of its food, the highest level among developed countries. It imports almost all its oil. Crude oil, corn and wheat all reached record prices this year.

Core prices will probably climb 1.8 percent in the fiscal year ending March 2009, the central bank said last week. That gauge of inflation is expected to ease to 1.1 percent in the next fiscal year, it said.

The bank will hold the benchmark interest rate at 0.5 percent at least for the rest of the year, according to 31 of 33 economists surveyed by Bloomberg News this month. Two analysts predict a rate increase.

Atsushi Mizuno, a Bank of Japan board member, said yesterday that the central bank should keep rates on hold for now as rising commodity prices are slowing economic growth.

Core inflation is likely to show further acceleration in July as utilities and processed food makers raise retail prices.

Tokyo Electric Power Co. and nine other power companies increased charges on July 1, as did four gas providers, including Tokyo Gas Co.

Tokyo Electric also plans to adopt a new pricing system in September to reflect higher fuel costs, a sign that other electricity charges will also climb further later this year.

Mizuno said he expects core price gains to reach about 2.5 percent in "the autumn." Still, he added, inflation isn't spreading because wage growth is moderate.

Excluding food and energy, Japan's consumer prices rose 0.1 percent in June from a year earlier. That's only the second time in the past 10 years that they have increased.

Companies that are raising prices to absorb higher costs are also seeing sales drop.

All Nippon Airways Co., Japan's second-largest carrier, last week said that surcharges it imposed to compensate for record jet fuel prices will cut annual sales by about 10 billion yen ($94 million).