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(2nd LD) S. Korea's consumer price growth hits 16-month low in Aug.

All News 09:36 September 01, 2016

(ATTN: ADDS finance ministry's comments in last 3 paras)

SEJONG, Sept. 1 (Yonhap) -- South Korea's consumer prices increased at the slowest pace in 16 months, rekindling concerns of possible deflation in Asia's fourth-largest economy saddled with a protracted slump in domestic demand and falling exports, government data showed Thursday.

The country's consumer price index rose 0.4 percent last month from a year earlier, staying below the 1 percent level for four straight months, according to the data compiled by Statistics Korea.

The August figure also marked the lowest on-year gain since April last year, when it moved up 0.4 percent.

From a month earlier, the index edged down 0.1 percent in August.

Core inflation, which excludes volatile oil and food prices, increased 1.7 percent compared with last year, remaining unchanged from a month earlier.

The agency said a drop in public utility bills and gasoline prices dragged down the price index last month as the government decided to give a temporary electricity price cut for the July-September period amid the sizzling summer.

The price index of electricity and fuel gas tumbled 12.6 percent on-year in August, with that of gasoline at the pump falling 8.8 percent.

"As a low oil price trend continues, the consumer price index was largely affected by the government-led discount program on electricity bills last month," said Woo Young-jae, director of the agency's price statistics division.

"The drop in electricity prices pulled down the entire index by 0.25 percentage point."

Prices of agricultural products fell 1 percent on-year last month, also hit by the scorching heat wave in August. In particular, prices of fresh fruit retreated 0.5 percent in August from a year earlier, while that of fresh vegetables gained 5.4 percent.

The agency said South Korea's consumer prices have remained low for years, but the tendency is largely driven by globally low oil prices, citing the steady core inflation.

"A one-off factor like the government-led discount program caused the 16-month low inflation gain for August," said Woo. "But it is too early to say that South Korea is facing deflation, which means a decrease in the general price level of goods and services as a whole."

The finance ministry also expected the index to touch the 1 percent level again in the coming month when the electricity price cut program ends.

"And downside pressures will likely ease in the latter half of the year as the downbeat pace of global oil prices has been slowing for months," the ministry said in a release. "The government will make efforts to stabilize the prices of agricultural products and other livelihood items in a run-up to the Chuseok holidays."

Chuseok, the South Korean equivalent of Thanksgiving, falls on Sept. 15, with a five-day long holiday.


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