Economists see deflation as a concern, survey says
With deflation worries on the rise in Japan and Europe, Korean economists are warning about falling price levels for goods and services in the domestic market.
A JoongAng Ilbo survey of 20 economists found that 11 were concerned about deflation. Four of the 20 believe the economy already has entered the early stages of deflation, and five attributed low prices to the economic downturn.
As more economists debate whether the economy is heading toward deflation, calls for more aggressive monetary and fiscal policies are growing.
According to data by the Bank of Korea on Nov. 19, domestic producer prices dropped 0.7 percent in October compared to a month earlier, their lowest level since January 2011. It was the third straight monthly decline. This year, producer prices fell every month except for May through July. Last year, prices dropped 1.6 percent.
Twelve economists in the survey said the central bank should cut the benchmark interest rate one more time, while five said the government should increase spending to stimulate the domestic market. Some argued for aggressive structural reforms.
“The Korean central bank should give a definite signal that it will come up with monetary policy measures equivalent to the quantitative easing that was seen in the United States,” said Sung Tae-yoon, an economics professor at Yonsei University.
“The BOK has been focused on containing inflationary pressures,” said Lee Geun-tae, a senior fellow at LG Economic Research Institute. “It can’t just blame low oil prices. The central bank now should consider low inflation as a problem and adopt flexible monetary policies.”
Some economists say there is not much time left to prevent deflation.
“Unless Korean authorities take definitive measures before the U.S. rate hikes that are expected in mid-2015, the Korean economy might follow Japan,” said Oh Jung-gun, an economics professor at Konkuk University.
Some call for overall changes in the structure of the economy along with reforms in all parts of the country. “The current global crisis is triggered by aging, economic polarization and changing industrial structures in many countries,” said Hong Sung-kuk, vice president at Daewoo Securities.
“To overcome the crisis, there needs to be an economic policy response along with structural reforms of all politics, society, education and labor fields.”
BY KIM WON-BAE, SONG SU-HYUN [firstname.lastname@example.org]