Welfare spending spurs inflation drop

Consumer inflation grew by its slowest on-year pace in 20 months in March as government spending on welfare support for child rearing helped offset rising international oil prices.

However, the price of bare necessities such as utilities, transportation costs and fresh produce rose last month, deepening the disconnect between the official inflation index and the steep price hikes many consumers are experiencing.

According to data released by Statistics Korea yesterday, Korea’s Consumer Price Index rose just 2.6 percent in March from a year ago. This marks the lowest level of on-year growth since July 2010, when inflation began to snowball. It remained a chronic problem until this January.

However, officials said that the inflation index was partially kept in check last month as consumers saved money on a variety of child care and education costs due to a slew of welfare measures that took effect in March, the start of the new school year.

“The cumulative effect of new state support for using child care facilities, kindergarten payments and free school lunches shaved off nearly 0.5 percentage points from the inflation index,” said Ahn Hyung-jun from Statistics Korea’s prices statistics division.

“All in all, some 1 trillion won [$886 million] from the government budget were newly disseminated to the public [through state support programs],” Ahn added.

A steep jump in inflation during March 2011, when Japan suffered an earthquake and tsunami, further caused this year’s index to appear comparatively low.

Meanwhile, staple foods and frequent expenses spiked last month. The cost of agricultural goods rose 9.4 percent on-year, led by price jumps in ground pepper, tangerines and tomatoes. Among utilities, gas costs rose 9.8 percent, while subway fees climbed 14 percent.

“The rising price of oil is the biggest cause for concern,” said Deputy Minister Joo Hyung-hwan of the Ministry of Strategy and Finance.

“[Oil prices] affect not just the cost of petroleum products, but everything that relies heavily on these, such as transportation and fresh produce, as greenhouses need heating and fishing vessels need fuel,”

By Lee Jung-yoon [joyce@joongang.co.kr]