Prices stall, but officials say the worst is over

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Prices stall, but officials say the worst is over


Inflation remained flat last month, dampening concerns of deflation after price levels reached negative terrain in September.

According to Statistics Korea data released Friday, the consumer price index stood at 105.46 in October, unchanged from the previous year.

The agency blamed seasonal factors for the lack of movement as prices for agricultural goods fell 3.8 percent last month due to high prices last year, while petroleum goods declined 7.8 percent. It explained that the factors led to a 0.74 percentage point fall in the inflation rate.

Core inflation, which disregards seasonally-sensitive agricultural and petroleum goods, rose 0.8 percent.

Policy factors such as an expansion of the state-sponsored health care program and free high school education from the second half of this year also weighed on inflation, with the agency explaining that they cut the inflation rate by 0.22 percentage points.

It added that it expects inflation to recover to the mid-zero percent range toward the end of the year once the base effect from high agricultural prices last year dissipates.

Despite the rebound, price levels continue to be extremely low, with inflation remaining under 1 percent since January this year.

The consumer price index for living necessities, which monitors the basket of most-bought items, fell 0.3 percent last month from the previous year, recording an on-year decline for a third consecutive month.

The state-backed think tank Korea Development Institute recently warned in a report that the government and the central bank should be just as concerned about low inflation as the possibility of deflation, arguing for active monetary policy.

It explained that low inflation could cause a rise in real interest rates and weigh on investment and spending.

Along with low inflation, exports fell for the 11th consecutive month in October, falling 14.7 percent from the previous year, according to the Ministry of Trade, Industry and Energy.

A 32.1 percent decline in semiconductor shipments led the overall fall, while petrochemical products decreased by 22.6 percent.

Despite the disappointing data, the government believes the worst is over in terms of trade.

“Recent export volume has not decreased, and declines in semiconductor prices have slowed,” said Industry Minister Sung Yun-mo in a statement. “October exports will likely be the lowest point, and we expect gradual improvement.”

Although export volume in October fell by 2.2 percent, it has remained above negative territory for the past three months.

Memory chip prices have stabilized in recent months, although they are far from last year’s levels.

According to the Trade Ministry, a single DDR4 8-gigabyte DRAM chip cost $2.81 in October, a 61.6 percent drop from $7.31 last year.

The government also cited the possibility of a Phase 1 agreement in the U.S.-China trade conflict and increasing exports in ships, cars and petroleum products as factors to help lift exports to positive terrain in the first quarter next year.

“Ship orders from 2017 will be reflected as exports in the first and second quarters next year,” explained Park Tae-sung, deputy minister for trade and investment during a briefing at the Government Complex in Sejong.

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