Incomes are failing to keep up with inflation despite government’s efforts to secure stable growth

Real wages in Japan last month slumped the most since 2014 as inflation outpaces growth in incomes in the country, its labor ministry reported on Tuesday.

Earnings fell 4.1% year-on-year in January, marking a decline for a tenth consecutive month and undermining the government’s attempts to reach a goal of 2% inflation accompanied by strong wage growth.

In December, nominal wages in Japan saw their highest jump in nearly 25 years, largely pushed by winter bonuses. But the temporary uptick was followed by the worse-than-expected decline, indicating that the country’s economy is still far from the cycle when both wages and prices rise steadily.

“It appears that many firms attempted to respond to inflation with one-time measures such as lump-sum payments rather than increases in base wages,” chief economist at Daiwa Securities, Toru Suehiro, said. “The impact of December bonuses and inflationary allowances was expected to spill over into the non-bonus portion of wages, but this was not the case,” he added.

According to the head of Bank of Japan Haruhiko Kuroda, a 3% increase in base pay is needed to maintain an inflation target of 2% in the country. Meanwhile, the January rise in nominal cash earnings of just 0.8% was distant from the level necessary for sustainable growth.

Japan’s trade unions are reportedly demanding a 4.5% wage hike at their spring pay negotiations with companies, the biggest since the 1990s. However, economists do not expect a significant pay raise from the upcoming negotiations.

“We expect a 2.8% bump in base pay for 2023, up from 2.2% last year,” Bloomberg’s lead economist Yuki Masujima said.

This comes as Japanese consumers face the highest price growth in four decades. Core inflation, which excludes volatile fresh-food prices but includes oil products, is currently running at 4.2%, the fastest pace of growth since 1981.

This article was originally published by RT.