(Bloomberg) — Japan’s households cut spending again as sticky inflation weighed on sentiment, clouding the prospects for the virtuous economic cycle sought by the central bank.
Real outlays decreased 1.2% in March from a year ago, falling for a 13th consecutive month, the ministry of internal affairs reported Friday. The result compared with economists’ forecast of a 2.3% drop. Spending rose 1.2% from a month earlier.
The year-on-year drop in March shows that households continue to tighten their budgets as pay increases fail to keep up with rising costs of living. Real wages fell in March for a 24th straight month, a period during which a key gauge of consumer inflation remained at or above the Bank of Japan’s 2% inflation target nonstop.
The downbeat mood may extend for another month, as consumer confidence unexpectedly declined in April, with a gauge showing the willingness to buy sustainable goods sliding to the lowest since December.
Authorities are hopeful a change is coming. The wage outlook is already brightening after Japan’s largest umbrella group for unions won commitments from large companies for the highest wage hikes in three decades in the fiscal year that started in April. That could boost spending even if inflation stays elevated, according to the BOJ.
“Although private consumption is expected to be affected by the price rises, it is projected to increase moderately, mainly reflecting the rise in wage growth and improvement in consumer sentiment,” the central bank said in its latest quarterly report.
Policymakers view a rebound in consumption as a must in order for the economy to switch to demand-driven inflation. For the BOJ, the strength of spending holds the key as to whether it can raise interest rates again after its first rate hike in 17 years in March.
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