Household spending increased a real 3.4 percent in July from a year earlier, helped by the lifting of COVID-19 restrictions that prompted a rise in recreational and dining expenditure, government data showed Tuesday, in a fresh sign of a gradual return to normalcy.
Average spending by households with two or more people stood at 285,313 yen ($2,031), up for the second straight month, but the figure was still lower than pre-pandemic levels, according to the Ministry of Internal Affairs and Communications.
Rising prices and a recent resurge in COVID-19 cases cast a pall over the strength of a recovery in private consumption, which accounts for more than half of the country's gross domestic product.
The impact of accelerating inflation is being increasingly felt, with separate data showing average real income dropped 1.3 percent in July from a year earlier. The figure was down for the fourth straight month, with the pace of decline quickening from 0.6 percent in June, in a trend that could dent spending appetite ahead.
Spending on recreation jumped 11.2 percent, helped by a rise in accommodation fees amid a recovery in demand for travel. Outlays on food items fell 1.3 percent, partly because more people dined out when compared with a year earlier when anti-virus curbs were in place.
Expenditures on furniture and household items dropped 5.6 percent from a year ago when demand for durables such as televisions was strong ahead of the Tokyo Olympics and Paralympics.
An increase in household spending bodes well for the economy, whose recovery from the COVID-19 fallout has so far been modest. Even though people have begun to spend more on eating out and drinking alcohol, the levels of such expenditures are still lower than before the pandemic in July 2019, the ministry data showed.
"Spending rose from a year ago but we will have to closely watch the impact of rising prices from now," a ministry official said.
The government has taken steps to soften the blow from rising energy and food prices to consumers, with an additional package expected to be unveiled later this week.