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Producer prices slip a bit in August

Producer prices dipped last month, after slight rises in the previous two months.

The Bank of Korea said yesterday the Producer Price Index stood at 105.57 in August, down 0.2 percent from the same month last year.

The index had been declining for 19 consecutive months since October 2012. It stopped falling in May, then slightly rose in June and July.

The Producer Price Index is considered important because it is a leading indicator of the direction of consumer prices.

Producer prices of commercial goods fell 0.3 percent in August compared to July, leading the overall drop.

Remarkably, petrochemical product prices tumbled because of decreases of more than 4 percent in international oil prices last month, the central bank said in a report.

“Since oil prices are continuing to decrease this month, the index is likely to continue to go downhill,” said a BOK official.

On the other hand, producer prices of agricultural products rose 1.2 percent due to spikes in the cost of vegetables and fruit due to heavy rains.

Pumpkin prices surged about 121 percent, while lettuce jumped 81 percent.

Service prices inched up 0.2 percent, owing to high demand during the summer vacation season.

The central bank aims to boost the inflation rate to 2.5 to 3.5 percent year-on-year, but it has not been able to achieve that goal for the past year.

Consumer price growth has been in the 1 percent range this year.

As the low inflation trend continues, there is heightened concern about the possibility of deflation.

BOK Gov. Lee Ju-yeol said at a recent forum that the central bank had been incorrectly forecasting growth in prices because it failed to consider structural factors.

Lawmakers at the forum demanded the bank lower the target rate.

However, Lee did not mention when he might revise downward the BOK’s inflation rate target for the year, which it set at 1.9 percent in July.

Meanwhile, consumer prices picked up 0.2 percent in August from a month earlier, which is lower than the average for the same month over the past 10 years.

The Ministry of Strategy and Finance forecasts the inflation trend will maintain the status quo for the next few months.

“Prices have been stabilized, but it is too early to talk about deflation,” said a ministry official. “With the expansion of the next year’s budget, such worries about deflation would disappear.”

BY song su-hyun[ssh@joongang.co.kr]