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Korea’s Negative Inflation Rate Raises Deflation Fears

The Korean inflation rate reached a negative figure (-0.038%) last August for the first time since the collection of its data in 1965. Earlier this year, Korea’s consumer prices hovered below the one percent threshold from February to July, eventually reaching a negative consumer price growth in August. In response to the trend, many Korean economic think tanks have downgraded their growth forecasts for the Korean economy for this year. The Korea Economic Research Institute (KERI) under the Federation of Korean Industries also estimated this year’s gross domestic product (GDP) growth rate at 1.9 percent, down from the previous 2.2 percent. As such, the fears of deflation has drawn attention to the changes in the interest rate that may take place in the upcoming months. On October 16th and November 29th, the Monetary Board of the Bank of Korea will hold two final meetings of the year to discuss and decide on a rate. Experts say that there is a high chance the meetings will result in a cut in the interest rate, while others argue that the additional cut will not have a significant impact as the current rate is already low. It is said that the additional cut may make it more difficult to lower the interest rate later on when it may be more desperately needed. According to the Ministry of Strategy and Finance and the Bank of Korea, the consumer prices decreased due to temporary factors such as declining prices in agriculture, fisheries, livestock and oil. The ministry also assured that the Korean economy is not going through deflation. However, some economists diagnose that the current phenomenon is caused by an economic downturn that should not be taken lightly. They argue that the government should make a comprehensive effort to prevent economic lethargy in the long term.

이시후  sarahshilee@gmail.com

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