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Key consumer prices fell at a slightly slower pace in September but failed to log gains for a sixth straight month, with economists expecting worse to come over the coming months.

A gauge of prices excluding fresh food fell 0.3% from a year earlier, largely reflecting the impact of government travel subsidies, following a 0.4% drop in August, the internal affairs ministry reported Friday. Analysts had forecast a 0.4% decline.

The figures come ahead of a meeting next week in which the Bank of Japan will give its latest inflation forecasts. While the latest data may help ease concerns of a descent into longer-term deflation for the time being, additional factors are expected to weigh on prices from next month.

The COVID-19 pandemic has eliminated upward momentum in prices as the economy has suffered a record contraction, with restrictive measures weighing on consumption. Mounting job losses, falling wages and a slow recovery in spending are also likely to keep inflation weak.

Next week, the Bank of Japan is likely to consider slightly adjusting its inflation forecasts to reflect the short-term downward impact of the travel subsidies on prices, according to people familiar with the matter.

Even if the latest data doesn’t ratchet up concerns, Japan is still close to a critical point where it could fall back into deflation, said Yuichi Kodama at Meiji Yasuda Research Institute.

"The impact of the Go To campaign isn’t bad in itself, since it’s helping push up consumer demand. And it’s a decline of a particular category, so I don’t think this particular point should raise deflation concerns,” he said.

Inflation is likely to weaken after October, when it loses the upward support of a sales tax increase a year ago.

Analysts forecast consumer prices will fall 0.6% in the October to December period.

Keeping credit lines open to companies remains the BOJ’s priority, and the bank is sticking to its 2% target for inflation in the long term.

Prime Minister Yoshihide Suga is calling for lower mobile phone fees as part of his reform agenda, indicating that inflation isn’t at the top of his agenda for now.

Inflation excluding energy and fresh food was flat, compared with a 0.1% drop forecast by analysts.

Overall prices were also unchanged, in line with the analysts’ forecast.

The government Go To Travel subsidies helped push down accommodation charges by 30%, which dragged the overall index down by minus 0.35 percentage point, a touch less than in August.

Deeper falls in electricity prices canceled out the impact of smaller drops in gasoline prices.

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