Japan’s household spending increased for the first time in three months in September, showing some recovery despite growing concerns over inflation weighing on households’ spending power.

Household outlays gained 1.8% from August, led by furniture, household items and clothing, the ministry of internal affairs reported Tuesday. Spending levels compared with the previous year came in weaker than expected, rising 2.3%, compared with analysts’ 2.6% forecast. Spending also fell 1.6% for the quarter compared with the previous three months.

A separate data report showed wages maintained an upward trend on a year-on-year basis, climbing 2.1% in September, although it continued to decline when accounting for inflation.

The monthly rise in real consumption offers hope that Japan’s recovery from the pandemic has some resilience, even in the face of accelerating inflation. Retail sales increased 1.1% in September from August, indicating continued purchasing appetite. Industrial production in the third quarter also gained 5.9%, reflecting strength among manufacturers, even though households spent less in those three months.

"I heard people tended to refrain from traveling from July through August as the number of coronavirus infections increased,” said Shuji Tonouchi, senior economist at Mitsubishi UFJ Morgan Stanley. "In September, fewer people refraining from traveling and consecutive holidays boosted demand.”

After hitting a record of more than 200,000 new cases of COVID-19 per day in August, case numbers fell rapidly in September, coming down to less than a tenth of the peak by early October.

Japan’s relaxation of border restrictions last month may also continue to boost spending in the country. Prime Minister Fumio Kishida is reportedly targeting an annual ¥5 trillion ($33.8 billion) in spending by foreign visitors, taking advantage of the weak yen.

"Solid household spending in September probably helped support Japan’s recovery in the third quarter, but it’s not likely to last. High-frequency data suggests inflation that’s above 3% has started to squeeze spending in real terms,” Bloomberg economist Yuki Masujima said.

Accelerating inflation remains a concern as it may cool consumption. Nationwide inflation hit 3% for the first time in over three decades in September, excluding tax hike impacts. In October, Tokyo’s core consumer price index rose at its fastest pace since the late 1980s.

To ease the impact from inflation and boost growth, Kishida ordered an extra budget worth ¥29.1 trillion. The plan includes aid to reduce energy costs that will shave more than 1.2 percentage point off overall inflation, according to the government’s estimate.

The recent rapid inflation and the yen’s historic slide haven’t moved the Bank of Japan away from its ultraloose policy. Gov. Haruhiko Kuroda pointed out that the current cost-push inflation isn’t sustainable without robust wage growth, and emphasized the importance of maintaining rock-bottom interest rates to keep supporting the economy.

"Purchase volume data indicate that households are spending considerably less on items that have been raised in price,” said Mitsubishi UFJ’s Tonouchi. "Although spending on groceries has increased year over year, we have the impression that more and more households are taking the stance of not buying items that have had a price hike.”