Consumer price growth slowest in sixteen years

South Korea’s consumer prices continued anemic growth for the fourth straight month in March, the state-run Statistics Korea said Wednesday.

Consumer prices increased just 0.4 percent last month from the same period a year ago, marking the slowest growth in 15 years and eight months. Consumer inflation increased 0.3 percent in July 1999. In February, the consumer price index gained 0.5 percent on-year.

Inflation has stayed below 1 percent since October 2013 when the rate stood at 0.9 percent, and well below the central bank’s midterm target of above 2.5 percent.

Also, when excluding the government-enforced price increase in cigarettes by 0.58 percentage point, or 2,000 won on average, Korea’s inflation turned negative last month, further raising deflation concerns.

The government and the Bank of Korea have consistently downplayed deflation concerns, noting that the country’s core inflation, which excludes oil and agricultural prices, would be around 2 percent.

The central bank cut its key base rate to a record low of 1.75 percent last month as it feared that growth and inflation would fall short of its initial expectations. BOK Gov. Lee Ju-yeol said that it had to cut the interest rate to give momentum to growth despite increasing risks stemming from high household debt.

“Korea has a low chance of falling into recession and deflation,” Lee said during a press meeting to mark his first anniversary as the top monetary policymaker.

“Low consumption is a concern though, rather than exports.”

The central bank is expected to revise its growth outlook and inflation target in the near future.

Korea’s low consumer prices were mostly due to falling international oil prices, market analysts said.

“Decreased prices in agricultural goods and utility gas affected consumer prices last month,” said Kim Bo-kyoung of the statistical agency’s price statistics unit.

Last month, core inflation, however, increased 2.1 percent on-year, staying close to the 2 percent range for the third straight month, Statistics Korea noted.

By Park Hyong-ki (hkp@heraldcorp.com)