(Bloomberg) -- Japanese household spending fell in November for the first time in three months, a sign of unexpected fragility in consumption even before the omicron variant of the virus started to spread.
Spending declined 1.2% from the prior month, led by drops in outlays on housing and education, the ministry of internal affairs reported Friday. Overall expenditures were 1.3% below 2020’s level, compared with economist’s expectations for a 1.2% increase.
Separate reports showed Tokyo inflation rose 0.5% last month from a year ago, the highest level since February 2020. Wages were flat in November, showing how much work Prime Minister Fumio Kishida must do to stoke the pay hikes he’s called for as a centerpiece of his economic agenda.
Consumers showed less appetite for spending in November even as vaccination rates climbed and Covid cases became more rare during the second full month since emergency virus restrictions were lifted.
The spread of the omicron variant, which has pushed case numbers back to levels not seen since late summer, could further damp the recovery if it triggers another emergency declaration, though the odds of that are still low.
Analysts have been forecasting consumption helping the economy return to growth last quarter, with a stimulus package from the Kishida administration expected to add support this year.
Tokyo raised its alert level one notch this week, but the governor said there are no plans at this point to ask the national government to introduce a quasi-emergency in the capital, where 641 cases were discovered Thursday, around 10 times more than a week earlier.
Tokyo Governor Says She Won’t Seek Virus Restrictions for Now
Meanwhile, higher energy prices and import costs on the back of a weaker yen continue to push Japanese inflation higher. At a policy meeting this month, the Bank of Japan will likely discuss the possibility of ditching of a long-held view that price risks are mainly on the downward side, according to people familiar with the matter.
Any shift in the risk assessment of prices won’t be a signal that the BOJ is moving toward policy normalization since inflation is still far from the bank’s 2% target in stark contrast with many of its global peers, the people said.
What Bloomberg Economics Says...
“We expect pent-up demand to spur spending into 1Q 2022 with wide vaccination coverage and a relatively low number of virus infections. Fiscal stimulus -- including wage support measures and cash and coupon payouts to low-income households -- has been supporting consumer sentiment.”
--Yuki Masujima, economist
For the full report, click here
Japanese policy makers have repeatedly said that higher wages hold the key to whether the economy reaches a more sustainable path, where consumers tolerate higher prices, profits increase and growth quickens.
In a speech to Japan’s biggest business lobbies this week, the prime minister urged companies to boost worker pay to help the economy recover. He’s called on firms to raise wages by 3%.
(Adds detail on spending decline. A previous version of the story corrected the economist’s estimate for year-on-year spending. Analysts had expected an increase, rather than a decline.)
©2022 Bloomberg L.P.