South Korea's headline inflation stays at 15-year low in 2014

South Korea's consumer price inflation stayed at a 15-year low in 2014 on the back of low prices of crude oil and farm goods, boosting worries about deflation, a government report showed Wednesday.
Consumer prices rose 1.3 percent in 2014 from a year earlier, posting the same increase as in 2013, according to Statistics Korea. It marked the lowest increase since 1999 when the prices gained 0.8 percent, staying far below the Bank of Korea (BOK)'s mid-term inflation target band of 2.5-3.5 percent.
It was the first time that the headline inflation stayed below 2 percent for two years in a row, sparking concerns that consumers may delay consumption on expectations for further fall in prices of goods and services and cause the protracted economic slowdown as seen in Japan.
After peaking at 4 percent in 2011, the consumer price inflation declined to 2.2 percent in 2012 and 1.3 percent in 2013.
The continued decline came as prices in farm goods and oil products retreated 2.7 percent and 4.3 percent each.
In addition to the supply-side factors, weak demand caused by the economic slowdown also contributed to the low inflation. The finance ministry cut its 2015 growth outlook to 3.8 percent from an earlier forecast of 4 percent.
Expectations for policy rate cuts are running high amid the low headline inflation, but BOK Governor Lee Ju-yeol said in his New Year's message that it would not be desirable to manage the monetary policy solely to meet the inflation target.
Lee said the low inflation was caused by supply-side factors, such as low oil prices and falling farm goods prices, which cannot be controlled by the bank's monetary policy. The BOK lowered its policy rate in August and October to a record low of 2 percent.
Global oil prices fell to the lowest in five years, trading below 60 U.S. dollars per barrel, fueling expectations that the consumer price inflation would stay low for the time being.
Core consumer prices, which exclude volatile farm goods and oil products, gained 2 percent in 2014 from a year earlier. The OECD- method core prices, which exclude food and energy prices, climbed 1.7 percent.
The so-called livelihood prices, which reflect costs of key daily necessities, rose 0.8 percent, but fresh food prices, which gauge prices of fruit and vegetable, tumbled 9.3 percent. It marked the biggest decline since 1990 when the statistical agency began compiling the data.
The finance ministry expected the headline inflation to rise to 2 percent in 2015 as the government raised prices of tobacco by 80 percent from next year.
In December, consumer prices rose 0.8 percent compared with the same month of last year, marking the lowest in 14 months.
Core consumer prices gained 1.6 percent in December from a year earlier, posting the lowest in 15 months.
The livelihood prices edged up 0.3 percent in December from a year ago, marking the lowest in 14 months. Fresh food prices declined 2.8 percent, maintaining the downward trend for 16 straight months.
Prices for agricultural, livestock and fishery products increased 1 percent in December from a year ago, rising for the first time since August 2013. Pork and beef prices jumped 13.3 percent and 6.9 percent each, leading the gain.
Industrial goods prices, which helped pull down last month's headline inflation, declined 0.6 percent in December. It was the biggest fall since April 1999 when the prices slid 0.8 percent. Gasoline and diesel prices plunged 10.8 percent and 12.6 percent respectively.
Utility prices advanced 2.1 percent in December from a year earlier as the government raised public utility costs to contain a surge in debts of public corporations. City gas and water utility costs increased 4.8 percent and 0.6 percent each last month.
Service prices, which represent demand-side inflationary pressure along with the industrial goods, increased 1.6 percent last month. Public service prices gained 0.6 percent on higher charges of outpatient clinic and sewerage, prices of which jumped 1.8 percent and 8.7 percent each.
Private service prices climbed 1.8 percent last month on higher tuition fees in private education institutes for high school students. Housing rents advanced 2.2 percent in December.