Japanese retail sales posted their 13th straight year-on-year increase in March, with the pace of increase at 7.2 percent above forecast again and nearly matching February's upwardly revised 7.3 percent jump, led by continued recovery in department store sales, a pickup in new vehicle sales, rising costs for food and beverages, data released Friday by the Ministry of Economy, Trade and Industry showed.

Domestic demand is likely to be supported by consumer spending as the economy continues to reopen, but the purchasing power of many households has been hurt by rising costs for daily necessities and falling real wages.

The monthly Economy Watchers Survey, which was conducted by the Cabinet Office from March 25 to March 31 and released April 10, indicated that confidence continued picking up in March on eased Covid public health rules, although some survey respondents noted rising food prices are limiting spending on clothing and elevated materials costs are squeezing corporate profits.

The Econoday Consensus Divergence Index stood at plus 24, above zero, which indicates the Japanese economy is performing better than expected. Excluding the impact of inflation, the index was at plus 28.

Japanese policymakers believe the economy needs continued monetary and fiscal policy support to achieve sustainable wage growth and stable 2 percent inflation, pointing that the output gap remains in negative territory by a wide margin.

Retail sales rose a preliminary 7.2 percent on the year in March for the 13th straight year-over-year rise after jumping 7.3 percent (revised up from a 6.6 percent gain). The increase was higher than the median economist forecast of a 6.5 percent rise (forecasts ranged from 5.1 percent to 8.6 percent gains). The 7.3 percent rise is the fastest rise since the 8.3 percent increase in May 2021.

On the month, retail sales edged up 0.6 percent on a seasonally adjusted basis in March for the fourth straight increase after rising 2.1 percent (revised from a 1.4 percent rise) in February. It was above than the median forecast of a 0.3 percent rise (forecasts ranged from a 1.1 percent drop to a 1.9 percent rise).

The ministry maintained its assessment after upgrading it for the second straight time last month, saying retail sales are"on an uptrend." Previously, it had said retail sales were"on a gradual uptrend." It noted that the three-month moving average in seasonally adjusted retail sales rose 1.2 percent in March for the ninth straight gain after rising 1.1 percent in the previous month.

Japanese retail sales are expected to post their 13th straight year-over-year increase in March, up 6.5 percent, with the pace of increase slowing from a revised 7.2 percent in February. Department store sales remain solid, new vehicle sales are recovering from year-earlier levels and consumers are paying for higher food and beverage costs. Sales are seen slowing to a 0.3 percent gain on the month after a high 2.1 percent gain in February.

Retail Sales measure the total receipts at stores that sell durable and nondurable goods. The data are part of the Preliminary Report on the Current Survey of Commerce.

Another way to look at consumer spending in addition to the household spending survey is through the retail sales report. This report gives the total value of goods and services sold each month at retail outlets. The preferred number is the change from the previous year. The report serves as a direct gauge of consumption and consumer confidence. Consumer spending is one of the most important leading indicators for the Japanese economy. Increasing sales signal consumer confidence and economic growth, but higher consumption also leads to inflationary pressures.