Inflation for 2020 was a paltry 0.5 percent

Economy

Published: 31 Dec. 2020, 15:20

Inflation for 2020 was a paltry 0.5 percent

The restuarant street in Myeong-dong, Seoul, empty despite being a year-end on Dec. 30 due to the social distancing restrictions. Covid-19 has been cited as a major factor surpressing inflation. [YONHAP]

The inflation rate for this year was a measly 0.5 percent as consumer demand was suppressed by the coronavirus pandemic.

But it was the second consecutive year in which inflation was below 1 percent, which suggests structural economic woes beyond the pandemic.

Furthermore, core inflation, which excludes volatile petroleum and agriculture prices, was the lowest since the Asian economic crisis of the late 1990s, raising concerns of deflation, which the government tried to downplay.

According to Statistics Korea on Thursday, overall inflation was kept below 1 percent in 2020 largely due to Covid-19 and despite soaring agriculture prices.

There have been only three previous times since data started being compiled in its current form in 1965 in which annual inflation was less than 1 percent.

The first was in 1999 during the Asian economic crisis when inflation was 0.8 percent. The second was in 2015, when falling global crude prices kept inflation at 0.7 percent. The third was in 2019.

A key factor this year was crude prices, which have been falling since February as demand fell around the world as economies slowed.

Petroleum prices fell 7.3 percent last year, which resulted in manufactured goods prices falling 0.2 percent year-on-year.

Overall inflation was positive thanks to the rises in agriculture and fishery prices, which went up 6.7 percent. That was the sharpest year-on-year increase since 2011, when agriculture and fishery prices went up 9.2 percent.

But social distancing measures pulled inflation down.

“While [2020] inflation rose 0.5 percent, which is 0.1 percentage points higher than 2019, the reason its increase was limited was because of two things — Covid-19's continuous influence [throughout the year] and [the government] policy influence,” said Ahn Hyung-joon, head of the statistics agency's short-term economic statistics department. “Because of social distancing restrictions, consumer prices for restaurants and other leisure and culture-related activities saw limited increases.”

Inflation in services, which include the restaurants and accommodations industry, was only 0.3 percent.

Inflation in services in the private sector was 1.2 percent, the lowest since 2012's 1.1 percent.

Inflation in services in the public sector was negative 1.9 percent due to certain government policies including expansion of free tuition for high school students.

Core inflation this year was 0.7 percent. That’s the lowest since 1999's 0.3 percent.

The Finance Ministry noted that this year’s low inflation was a special situation caused by Covid-19 and did not signify the country was entering a period of deflation.

With the deployment of vaccines throughout the world, there has been growing optimism of an economic rebound next year.

When Korea gets vaccines is still up in the air.

Although President Moon Jae-in said on Dec. 29 that the government has secured sufficient vaccine supplies and that vaccinations will start in February, an actual timetable has not been disclosed.

A recent study by the Korea Economic Research Institute projected that if vaccinations start in the second quarter, economic growth for next year will remain unchanged from 2020, estimated at a 1 percent contraction. If vaccinations are delayed a single quarter, it would result in negative growth of 2.7 percent.

BY LEE HO-JEONG [lee.hojeong@joongang.co.kr]