South Korean Headline Inflation Slows to 3-Year Low
South Korea’s headline inflation slowed in March to its weakest pace since July 2016 owing to lower prices for oil products and vegetables.
Statistics Korea reported that the consumer price index rose by 0.4 percent, up from 104.49 in 2018 — the lowest increase since last year. Additionally, consumer price inflation peaked at 2 percent in November 2017 before beginning to steadily decline from that point on. In December, the CPI fell to 1.3 percent, continuing to decrease to 0.8 percent in January and 0.5 percent in February. In month-by-month terms, prices fell 0.2 percent, down from 0.4 percent in the previous month and missing the 0.35% projected increase.
“Price growth in the service sector such as restaurants and travel agencies is weakening, in a sign of softer demand-side pressure,” said a Statistics Korea official.
The slower rise in consumer price inflation was attributed to mainly lower prices of produce and vegetables, as well as oil products such as diesel and gasoline. Prices for agricultural, livestock and fishery products fell by 0.3 percent in March from 2018, while prices for white radishes, strawberries, onions, green onions, and zucchini fell by 12.9 percent overall and dragging the overall inflation down by 0.21 percent. In addition, oil product prices fell 9.6 percent in March compared 2018, lowering the overall inflation by 0.43 percent.
Core CPI, which excludes agricultural and oil-based products, rose 0.8 percent from a year ago, also slowing from 1.1 percent in February. A sub-index for fresh produce costs dropped 3 percent on-year after falling 5.2 percent in February. Service costs gained 1.1 percent, slower than 1.4 percent gain a month earlier.
Seoul’s weakening CPI provides growing evidence of Sino-U.S. trade tensions and weakening global demand are hurting economic sentiment in South Korea, Asia’s fourth-largest economy. Additionally, these facts bolster the money market bets that the Bank of Korea may cut interest rates for the first time in three years. If this weakness in consumer price growth continues, economists speculate that the bank will be forced to further decrease its inflation forecasts, down from the current 1.4 percent prediction rate for 2019.
However, South Korea's central bank chief reassured the public on Monday that the Bank of Korea was not looking to ease any policy. Governor Lee Ju-yeol stated that, “We need to monitor further but it seems the situation doesn't warrant us to review an easing in policy interest rates now.”
The Bank of Korea’s next policy review meeting is on April 18.