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Inflation rate increases slightly

But deflation remains a concern as price rises stuck under 1 percent
May 03,2019
While the inflation rate rose in April from March’s two-and-a-half year low, deflation concerns remain.

According to Statistics Korea, consumer prices in April increased 0.6 percent from a year earlier. That is up from the 0.4 percent reported a month earlier but still the fourth consecutive month below 1 percent.

The last time inflation remained this low for so long was in 2016 between May and August.

Weighing most on the index were the prices of fresh produce and petroleum. Last month, vegetable prices when compared to the same period a year earlier were down 11.9 percent. Vegetable prices have been falling for four consecutive months. Petroleum prices last month fell 5.5 percent year on year. While gasoline prices were down 8.5 percent, diesel prices dropped 2.8 percent.

April was the fifth consecutive month that petroleum prices fell year on year.

The consumer price report came after the central bank last week reported that the Korean economy contracted 0.3 percent in the first quarter, the worst performance in a decade. This is a stark contrast to the rest of the world. The U.S. reported 3.2 percent growth in the same period, while China’s economy expanded 6.4 percent.

Private institutions have been lowering their growth forecasts for the Korean economy for this year. The latest adjustment was by Nomura Securities, which on Friday revised its growth projection from 2.4 percent to 1.8 percent.

Concerns have been on the rise about deflation as the Bank of Korea is forecasting inflation for the full year at 2 percent. KDB research center in a report released on Monday expressed its concerns.

It stated that while low inflation is currently the trend in the global economy, Korea’s consumer price growth is not only slower than that of emerging markets, such as China and Indonesia, but also of advanced economies, including the U.S. and Germany.

“It is a concerning situation that the pressure on falling consumer prices driven by shrinking exports, facilities investments as well as sluggish domestic factors, including rising household debt and slowing consumer spending, will continue,” the report said.

Exports last month improved on March, but the year-on-year number is down five consecutive months.

The government said it does not believe Korea faces deflation.

“While there are concerns of deflation since consumer price growth has been near zero percent, this is largely because agricultural and livestock prices have been stabilizing while oil prices have been falling,” said Kim Yun-sung, price statistics director at Statistics Korea. “So we don’t see the current situation as deflation.”

She added that one of the reasons petroleum prices went down is the government policy of lowering fuel taxes.

“We expect the index to be between 0.1 and 0.15 percentage points higher when the fuel tax is normalized,” Kim said.

In hopes of easing the financial burden on low-income households and small businesses, such as taxis and food delivery services, the government has lowered fuel taxes by 15 percent since November.

Some companies have been raising the price of food and beverages, including soju.

Starting this month, Hite Jinro, the maker of Chamisul, increased the factory price of the popular soju by nearly 6.5 percent.


BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]