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(Bloomberg) — Japan’s household spending was largely unchanged in July, adding to concerns that overall economic growth will stay tepid in the current quarter.
Real outlays, adjusted for inflation, advanced 0.1% from a year ago, the Ministry of Internal Affairs reported Friday. The result missed the consensus forecast of a 1.2% gain, and spending declined 1.7% from June.
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Spending on housing and education jumped, while outlays on transportation and food declined.
Private consumption slumped for more than a year until the second quarter, as sticky inflation prompted households to tighten their budgets. The mostly flat reading in Friday’s data indicates the economy may lose momentum in the three months through September.
“I think everyone was writing a storyline that positive wage growth would boost consumption, but it hasn’t worked out that way,” said Yutaro Suzuki, economist at Daiwa Securities. “I don’t think it’s getting any worse, but at the same time there’s no feeling it’s going up.”
The weak spending results come even as recent wage data have painted a brighter picture. Data Thursday showed that real wages rose for a second straight month in July after advancing in June for the first time in 27 months.
The Bank of Japan has long sought a virtuous economic cycle in which wage growth fuels spending, leading to demand-led price growth. The spending figures cast a cloud over the prospects for achieving the cycle, as persistent inflation continues to discourage households from loosening their purse strings.
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Friday’s data may raise some concerns about the prospects for finally breaking free from deflation for the government, just as a leadership transition gets underway. The ruling Liberal Democratic Party is set to elect a new president on Sept. 27. Given the LDP’s dominance in parliament, the party election is all but certain to determine the nation’s next premier after Prime Minister Fumio Kishida announced his intention to step down.
The pain of inflation helped fuel voter dissatisfaction with Kishida, leading to persistently low approval ratings. In addition to a temporary tax cut, his administration reinstated utility subsidies for three months through October in a bid to soften the blow from rising energy prices.
The BOJ has pledged to keep raising interest rates if inflation develops in line with its outlook. The central bank under Governor Kazuo Ueda has been raising its policy rate this year faster than many analysts had expected. Yet, the BOJ has also said it will closely monitor the fallout of the recent market crash on prices as it mulls the pace and timing of further hikes.
(Updates with more details, economist comments.)
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