Flat prices prompt deflation worries

Consumer prices continued to grow in the 1-percent range for the fifth consecutive month, allowing more room for the central bank to lower interest rates to stimulate the economy.

Low growth in consumer prices, however, is not entirely welcome as fear of deflation deepens, especially since quarterly economic growth has been flat since the second quarter of 2011 and consumers are tightening their purse strings.

Both the administrations of both President Park Geun-hye and her predecessor Lee Myung-bak worked hard to contain price increases of necessities such as fresh produce, utility costs including electricity and gas have gone up.

According to Statistics Korea yesterday, consumer prices in March grew 1.3 percent from a year earlier. Increases in consumer prices have been in the 1-percent range since they grew 1.6 percent in November.

Compared to the previous month the consumer price remained virtually unchanged, inching up 0.2 percent.

Fresh produce grew 1 percent from a year earlier and compared to the previous month fell 2.7 percent.

But utility bills as well as transportation costs and rents went up.

From a year earlier electricity, gas and water bills were up 6 percent. Jeonse, or long-term deposits, grew 2.9 percent on-year while monthly rents went up nearly 2 percent.

In transportation, bus fees were up 3.1 percent while taxi charges climbed 5.4 percent.

Private tutoring expenses for high school students went up 7.5 percent and for middle school students 6.2 percent.

The mild inflation is a stark contrast to 2010 and 2011, when consumer prices grew 2.9 percent and 4 percent respectively. The government recently lowered its economic growth outlook for this year from 3 percent to 2.3 percent, but it also lowered its estimate of consumer price growth from 2.7 percent to 2.3 percent.

If the economy fails to be simulated in the first half and consumer price growth remains low, market analysts say Korea may face deflation similar to that of Japan.

By Lee Ho-jeong [ojlee82@joongang.co.kr]