Salaries increased for the first time in nearly two years in January as companies boosted pay for part-timers, aiding Prime Minister Shinzo Abe’s effort to end 15 years of deflation.
Base pay excluding bonuses and overtime rose 0.1 percent from a year earlier, the first gain in 22 months, the labor ministry said Tuesday. Overall pay fell 0.2 percent, the first drop in three months.
Consumer spending and industrial output are surging ahead of the April 1 sales tax increase, fueling demand for part-time workers. The question for Abe is how quickly tightening in the labor market spreads to full-time workers, helping to generate sustained wage gains that help households cope with higher taxes and rising inflation.
“The tightening labor market is putting upward pressure on wages,” said Hideo Kumano, chief economist at Dai-ichi Life Research Institute. “We still need to see a higher rate of increase in pay to be assured of growth prospects after the consumption tax hike.”
The economy is gathering momentum as companies and consumers rush to make purchases before the sales tax rises to 8 percent in April from 5 percent. Production rose the most in January since June 2011, while retail sales posted the biggest increase since April 2012.
Once the rush is past, the economy is forecast to shrink an annualized 3.9 percent in the three months starting in April, slumping after a projected fifth straight quarter of growth, according to a Bloomberg survey.
Wage gains remain below the rate of inflation, which is cutting into consumers’ real spending power, showing the prime minister has work to do for his “Abenomics” reflation effort to succeed.
Consumer prices excluding fresh food rose 1.3 percent in January, matching the fastest pace since 2008 and more than halfway to a 2 percent target that Bank of Japan Gov. Haruhiko Kuroda is shooting for with unprecedented easing.