Families hit as inflation outruns wage rises


Increases in the cost of living outpaced annual earnings that rose for the first time in four years in 2014 as the Abe administration sought to reflate the economy.

Average earnings climbed 0.8 percent last year while pay, adjusted for inflation, fell 2.5 percent, the labor ministry said Wednesday.

Base wages excluding overtime and bonuses were unchanged in 2014, ending eight years of decline, preliminary data showed.

Earnings that trail inflation crimp the spending power of households, undermining the sustainability of price gains. Prime Minister Shinzo Abe and the Bank of Japan are pumping unprecedented stimulus into the economy in an effort to end two decades of stagnation.

“Wages are rising steadily in line with the real condition of the economy,” said Masaki Kuwahara, an economist at Nomura Securities Co. ” ‘Abenomics,’ especially the Bank of Japan’s quantitative easing, aims for inflation expectations to push up incomes further. But I don’t expect wage growth to meet these expectations.”

An increase in the consumption tax to 8 percent last April contributed to price gains while also reducing discretionary spending after the hike.

In December, average earnings advanced 1.6 percent, the 10th straight month of gains. Real wages, adjusted for inflation, dropped 1.4 percent, the 18th month of losses, according to the labor ministry.

The earnings gains accompanied a tightening in the labor market. The ratio of jobs to applicants rose to the highest in more than two decades in December and the unemployment rate fell to the lowest since August 1997.

Mixed economic data show the challenges Abe faces after the economy slipped into a recession last year following the sales tax increase.

BOJ officials reportedly assess that a 1 percent increase in average base wages, which are not adjusted for price gains, is needed in the coming fiscal year to sustain the economy’s emergence.

BOJ Gov. Haruhiko Kuroda called in December on companies to deploy their cash and invest more on facilities and workers.

“The BOJ’s ultimate target is to establish a virtuous cycle: actual price rises fueling rising inflation expectations, driving wage hikes, generating pickup in spending and improvement in corporate earnings, leading to price rises and another round of steady wage hikes,” Naohiko Baba, a Tokyo-based economist at Goldman Sachs Group Inc. wrote in a note last week.

  • Oliver Mackie

    “Average earnings climbed 0.8 percent last year while pay, adjusted for inflation, fell 2.5 percent, the labor ministry said Wednesday.”

    If you quote an inflation-adjusted figure, you don’t need to include the nominal change-in-earnings figure. Or are you trying to make it seem bigger than it is? It is 2.5 % (not nice, admittedly) but some will mistakenly come away thinking 3.3%.

  • Florian

    Thank you Abe for putting Japan into the same circle of hell as other countries! No one considers the effect of inflation on the population. Living in countries with inflation, having annually your 5-10% increase in food, restaurants, public transport frustrates everyone. Nobody cares that it’s linked to real time price increases (sometimes). Everyone feels cheated and unfair treated and the frustration and anger add to increased criminality. Inflation helps the government to increase spending, as with Abe into military, and companies to expand and pay out more to shareholders. It never ever helps the population and close to never drives companies to re-employ for positions that were made redundant. I thought Japan had an alternative but now we will just become another US or EU economy. Don’t take the broken G8 economies as benchmark.