Inflation rate falls to a 14-year low

Consumer price growth hit a 14-year-low in October, posting a 0.7 percent year-on-year increase, according to data by Statistics Korea released yesterday.

The last time the inflation rate was between zero and 1 percent was 0.3 percent in July 1999.

This year, the index remained in the 1 percent to 2 percent range until August. In September, it was 0.8 percent.

Almost all fresh food prices fell significantly, while prices of household goods, some services, and power and water bills rose slightly. Housing prices also rose.

The government data showed agricultural products and fisheries fell 4.1 percent, while prices of petrochemical products dropped 1.2 percent, owing to stabilized international oil prices.

“Thanks to mild weather conditions, shipments of vegetables and pork products were smooth,” the Ministry of Strategy and Finance said in a separate report.

Vegetables fell 14 percent and fruit dropped 2.7 percent.

Among them, spinach showed the largest decline - almost 53 percent - and cabbage fell 53 percent.

“The year-on-year growth rate stayed below 1 percent for the past two months largely due to a base effect from last year, which is a temporary phenomenon,” the ministry said. “Stabilization in the supply side also affected the index.”

According to the ministry, prices shot up last September and October due to typhoons and torrential rains.

Meanwhile, housing contracts rose 2.6 percent year-on-year and public utility bills inched up 0.2 percent from September.

The core inflation index, excluding growth in agricultural and oil prices, stood at 1.6 percent.

“Although consumer prices will maintain their current stabilizing trend, the forecast is for inflation to rise above 1 percent,” said Lee Dae-hee, an official at the ministry.

However, there is concern about the possibility of deflation.

“We are increasingly uncomfortable with the prolonged disinflation regime and are concerned about the risk of deflation in the near term,” said Raymond Yeung, a senior economist at ANZ in Hong Kong, according to Bloomberg. But the government says it is on track to lower inflationary pressure at the moment. “Our economic policy is centered on pursuing low inflation rates, unlike Japan’s efforts to boost prices,” said Choi Sang-mok, a policy adviser to Finance Minister Hyun Oh-seok.

A delegation of the International Monetary Fund also assessed the country’s low growth in prices positively, saying it makes Korea an appealing destination for investment. The delegation visited Seoul yesterday and announced it will keep its previous growth outlook for the country at 3.7 percent after its annual discussion with members of the Korean government.

BY SONG SU-HYUN [ssh@joongang.co.kr]