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(Bloomberg) — Japan’s households cut spending again as sticky inflation weighed on sentiment and government subsidies capped costs for utilities, with policymakers looking for historic wage hikes to be a catalyst for a recovery in coming months.

Real outlays decreased 1.2% in March from a year ago, falling for a 13th consecutive month, the ministry of internal affairs reported Friday. The result compared with economists’ forecast of a 2.3% drop.

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The year-on-year drop in March shows that households continue to tighten their budgets as pay increases fail to keep up with rising costs of living. Real wages fell in March for a 24th straight month, a period during which a key gauge of consumer inflation stayed at or above the Bank of Japan’s 2% inflation target nonstop.

While the year-on-year drop continued to paint a dismal picture of consumption, spending rose 1.2% from February, a second straight month-on-month gain that offers a possible sign of a turning point in the trend.

“Consumption has hit bottom, but I think the recovery momentum is weak as real spending remains negative from a year ago,” said Takeshi Minami, economist at Norinchukin Research. “Inflation is slowing down on items like food, but consumption remains subdued because real incomes are falling.”

The main driver for March decline was a 12.3% decrease in spending on utilities. Subsidies offsetting rising energy costs will end on May 31, pointing to rising expenditures for these services thereafter. Outlays on cultural enrichment also pulled the index down.

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The downbeat mood may extend for another month, as consumer confidence unexpectedly declined in April, with a gauge showing the willingness to buy durable goods sliding to the lowest since December. Consumption is also seen falling in the first quarter in gross domestic product figures due next week that are expected to show the economy contracted.

Authorities are hopeful a change is coming. Many household are set to receive one-off tax cuts starting in June, which may give consumption a boost.

Meantime, the wage outlook is already brightening after Japan’s largest umbrella group for unions won commitments from large firms for the highest wage hikes in three decades in the fiscal year that started in April. That could boost spending even if inflation stays elevated, according to the BOJ.

“We may see a positive effect on consumption if incomes jump in April and May with households getting tax cuts starting in June,” Minami said. “But I’m not sure how much consumption will get a boost as government support for utilities end. I think it will take time before consumption gets into a strong recovery mode.”

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Read more: Japan Labor Union Group Updates Wage Hike Tally to 5.25% Gain

Private consumption is projected to increase moderately, “mainly reflecting the rise in wage growth and improvement in consumer sentiment,” the BOJ said in its latest quarterly report.

Policymakers view a rebound in consumption as a must in order for the economy to switch to demand-driven inflation. For the BOJ, the strength of spending holds the key as to whether it can raise interest rates again after its first rate hike in 17 years in March. 

In April, the BOJ maintained its policy rate while saying medium- to long-term inflation expectations will rise with a virtuous cycle between wages and prices continuing to intensify. It expects its core inflation gauge to stay above its 2% goal this fiscal year before dropping slightly below that level in the following two years.

The yen’s fall to a fresh 34-year low may distort the central bank’s price scenario in that it could revive cost-push inflation driven by higher import costs. The BOJ stepped up its warnings about the impact of the weak yen earlier this week. 

“Abrupt and one-sided weak yen moves raise uncertainties and are negative for Japan’s economy and undesirable as, for example, they make it hard for companies to formulate their business plans,” Ueda said Wednesday. 

The governor reiterated that if the weak yen’s impact on inflation becomes too large, a “monetary response” might be needed.

(Adds details from report)

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