(Bloomberg) -- Base salaries for regular workers in Japan grew at a record pace, providing a tailwind for Prime Minister Shigeru Ishiba as he prepares to lead his party in a general election later this month.

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Base pay for full-time workers rose by a record 2.9% in August from a year ago, accelerating from a 2.6% pace in July, the labor ministry reported Tuesday. Growth in nominal cash earnings for all workers slowed to 3%, a tad stronger than the consensus estimate.

In a less promising development, real wages declined after advancing for the past two months, while a separate report showed that household spending fell.

“Wage trends overall aren’t too bad,” said Takayuki Toji, senior economist at Japan Post Insurance. He added that recent developments will create a positive backdrop for the ruling Liberal Democratic Party in the Oct. 27 general election.

The wage data come as newly installed premier Ishiba prepares to seek a mandate in that contest. Ishiba has vowed to apply pressure on businesses to keep wages rising, building on the biggest increases in three decades secured by workers this year. The nation’s leading business lobby has urged the government to create an economic environment conducive to hikes.

Wage trends are among the most closely watched indicators as the government and Bank of Japan seek to achieve a positive cycle of rising salaries fueling spending, spurring demand-led inflation. That mechanism would allow authorities to declare an end to deflation once and for all.

“I think the economic recovery trend will continue, but it will probably remain somewhat unclear whether the positive wage-price cycle has kicked in,” said Yuichi Kodama, chief economist at Meiji Yasuda Research Institute.

What Bloomberg Economics Says...

“Japan’s August pay data show strong underlying wage trends, with base salaries continuing to rise at the fastest pace since the early 1990s. This should strengthen the Bank of Japan’s confidence that solid wage growth will bolster inflation.”

— Taro Kimura, economist

Click here to read the full report

In a separate report from the Internal Affairs Ministry, Japanese households reduced their spending by 1.9% in August from the previous year, an indication that households continue to tighten their budgets after more than two years of price gains at or above the BOJ’s 2% target.

Households pared spending on housing, transportation and education, while outlays for food, clothing and furniture increased.

The wage figures will keep the BOJ on track for another rate hike at some point. Authorities are widely expected to hold monetary settings steady when they next set policy on Oct. 31, with many economists looking for another move by January.

The spending figures provide a less convincing argument for raising interest rates as they indicate wages are not boosting consumption in real terms given the strength of inflation.

Still, the drop in household spending from a year earlier was smaller than expected and outlays increased from July for the biggest month-on-month increase in a year, a possible sign that the trend may be improving.

Toji said the spending data may point to fairly solid gross domestic product data for the July-September period.

“I think the BOJ may be able to raise interest rates after December by checking these data including consumption and the GDP,” Toji said.

The weaker headline wage figures were largely driven by a sharp deceleration in bonuses, which only rose by 2.7%, much slower than the 6.6% and 7.8% gains in the previous two months. A more stable measure of wage trends that avoids sampling problems and excludes bonuses and overtime showed wages for full-time workers increased by 2.9%, maintaining 2% growth for a full year.

In his inaugural speech last week, Ishiba stated that his top economic priority is to combat deflation and put the nation on a stable growth path. The premier also emphasized the importance of wage growth outpacing inflation to foster a wage-led growth economy. The LDP is aiming to win support from voters in this month’s election with promises to help them cope with rising costs for basic needs after recent scandals eroded its support.

Ishiba began his term with relatively low public support. In a poll conducted by Sankei and FNN over the weekend, Ishiba’s cabinet approval rate stood at 53.5%. His predecessor Fumio Kishida had a 63.2% approval rate at his inauguration. Surveys show respondents consider measures to address inflation and promote wage hikes among their top priorities for the government.

To protect households from the impact of higher prices and support growth, Ishiba has already ordered his cabinet to compile a package of economic measures along with a supplementary budget to help fund it. The steps will include cash handouts for low-income households and regional economies, Ishiba said.

Businesses will soon prepare for the next round of annual wage negotiations. Rengo, Japan’s biggest umbrella group for labor unions, this month will compile its basic stance for a next year’s spring wage talks. Some Japanese workers achieved wage gains exceeding 5% as a result of this year’s pay talks, the largest hike since 1991.

Ishiba has indicated he also wants to help workers who don’t receive regular salaries by raising the minimum hourly wage to ¥1,500 ($10.11) from the current ¥1,055.

--With assistance from Keiko Ujikane.

(Updates with economists’ comments)

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