Wage growth slowed in June, highlighting the risk to consumer spending as inflation squeezes household budgets.

Average overall monthly earnings rose 0.4 percent from a year earlier to ¥437,362 after a 0.6 percent gain in May, the labor ministry reported Thursday, below the median forecast of 0.8 percent in a Bloomberg News survey of six economists.

Excluding bonuses and overtime, pay increased 0.3 percent, the first gain in 27 months.

Prime Minister Shinzo Abe needs wages to rise faster than inflation to support consumption and drive an economic recovery. Retail sales and household spending dropped in June, and industrial output fell the most since the March 2011 earthquake, underscoring the widening impact of the consumption tax increase in April.

“Wage increases have yet to spill over to smaller companies,” Hideo Kumano, executive chief economist at Dai-ichi Life Research Institute, said. “Unless wages rise in real terms, we can’t say deflation has ended.”

Adjusted for inflation, overall pay fell 3.8 percent. Data last week showed consumer prices increased 3.6 percent in June from a year earlier.

Bank of Japan Policy Board member Takahide Kiuchi on Thursday highlighted the risk of a continued slide in pay.

“In a situation where real wages per employee are likely to continue declining for the time being, the pace of improvement in real compensation of employees is likely to be moderate,” Kiuchi said in a speech in Kobe. “In such a case, the upward trend in private consumption may weaken.”

Abe has called on companies to dig into record cash holdings for investment and higher wages.

After recording an unprecedented ¥1.82 trillion profit last year, Toyota Motor Corp. plans to boost pay to directors by 19 percent for the previous fiscal year. This compares with the automaker’s agreement in March to increase base wages by 0.8 percent of last fiscal year’s average salary, with total pay to rise 8.2 percent.

The average minimum wage is seen rising ¥16 an hour nationwide in this fiscal year from ¥764 last year, according to a statement on the labor ministry website.

The Keidanren business lobby was expected later Thursday to release its finalized survey of summer bonuses at large companies. A preliminary report in May showed these special payments rising 8.8 percent from a year earlier, the biggest gain since 1997.

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