Japan Oct household spending rises for 5th straight month

By Kaori Kaneko and Kantaro Komiya

TOKYO (Reuters) -Japanese household spending rose for a fifth straight month in October from a year earlier, data showed on Tuesday, as easing coronavirus cases prompted more people to shop and eat at restaurants.

An improvement in consumer spending, which accounts for more than half of the economy, is seen as vital for the nation’s economic growth. Accelerating inflation, however, propelled by a weak yen amid a tepid recovery in wages cloud the outlook.

The nation’s real wages posted their biggest fall in more than seven years in October on relentless consumer inflation, separate data showed on Tuesday.

Household spending grew 1.2% in October from a year earlier, government data showed, slightly better than economists’ median estimate of 1.0%.

From the previous month, spending increased 1.1% in October, rising for the second straight month. Analysts had expected 1.5% growth for the month.

Consumption was also supported by the government’s travel subsidies to revive the tourism industry, which is starting to recover from a slump caused by the COVID-19 pandemic.

But broadening price hikes in daily necessities and household goods could prompt consumers to rein in expenditure.

Japan’s core consumer prices grew 3.6% in October, taking inflation to a 40-year peak, driven by a weak yen and higher import costs. While core consumer inflation exceeded the Bank of Japan’s 2% target for the seventh straight month in October, weak wages and services prices have kept the central bank cautious about withdrawing stimulus.

Japan’s real wages, a key indicator of consumers’ purchasing power, dropped 2.6% in October from a year earlier, the sharpest contraction since June 2015, data by the labour ministry showed.

Rising prices of food and energy costs and an increase in coronavirus infections also hit consumer sentiment in November. The nation’s consumer confidence index dropped last month to the lowest since June 2020.

Japan’s economy unexpectedly shrank an annualised 1.2% in the third quarter, falling for the first time in a year, hit by inflation and the global economic slowdown. Analysts expect the economy to rebound an annualised 3.1% in October-December, according to a Reuters’ poll taken late last month.

To offset the pain from rising inflation, the government compiled in October an economic package totalling 39 trillion yen ($285.4 billion), which was backed by an extra budget of 29 trillion yen.

($1 = 136.6600 yen)

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