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Japan's CPI falls 0.4% on year in Aug. due to travel subsidy program

A store clerk, right, wearing a face shield amid the coronavirus pandemic, serves customers at a Seibu department store in Tokyo on May 23, 2020. (Kyodo)

TOKYO (Kyodo) -- Japan's core consumer prices fell 0.4 percent in August from a year earlier due largely to accommodation fees lowered by the government's domestic travel subsidy program launched in late July, government data showed Friday.

    Nationwide core consumer prices, excluding volatile fresh food items, dropped for the first time in three months and marked the sharpest fall since November 2016, when they also sagged 0.4 percent, according to the Ministry of Internal Affairs and Communications.

    The core consumer price index was flat on year in July.

    On July 22, the government started the "Go To Travel" campaign, subsidizing 35 percent of travelers' expenses to spur demand for trips and help the tourism industry recover from the prolonged impact of the novel coronavirus pandemic.

    Accommodation fees plunged 32.0 percent in the reporting month and pushed down the CPI by 0.42 percentage point. "The government's travel subsidy campaign directly hit overall prices," a ministry official said at a press briefing.

    The Bank of Japan is likely to face an uphill battle to achieve its 2 percent inflation target, with the official saying, "There seem to be no factors pushing up the CPI for the time being following the launch of the travel subsidy program and a recent slowdown in gasoline prices."

    Prices of kerosene and gasoline dropped 10.9 percent and 6.3 percent, respectively, from a year earlier, while those of overseas package tours were down 3.2 percent.

    "Consumer spending in the service sector including the tourism industry was sluggish despite the travel subsidy program, as people refrained from actively going out amid a resurgence of virus infections," said Takeshi Minami, chief economist at the Norinchukin Research Institute.

    "Downward pressure on prices could be stronger, as household income could possibly be deteriorating following worsening corporate earnings" in the face of the prolonged impact of the virus, he added.

    So-called core-core consumer prices, which exclude fresh food and energy items, edged down 0.1 percent from a year earlier, posting the first decline since March 2017, the ministry official said.

    Excluding the impact of the consumption tax hike and a free preschool education and nursery program both introduced in October last year, core consumer prices lost 0.8 percent in August, compared with a 0.3 percent drop in July.

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