"South Korea's Low Inflation Trend, Key Factors: COVID-19 Resurgence and International Oil Prices"

"Low Inflation Rate Compared to Developed Countries Due to No Lockdown Measures or Panic Buying"

[Asia Economy Reporter Kim Eun-byeol] As the COVID-19 pandemic shocks global demand and supply, it is also significantly impacting inflation. In South Korea, consumer prices in May showed a negative (-) figure and inflation was lower than in other countries, which is analyzed as a result of not implementing full lockdown measures. Whether inflation will rebound depends on the progression of COVID-19 and the speed of international oil price recovery.

According to data compiled and analyzed by the Bank of Korea on the 14th from the OECD and Eurostat, South Korea's food price fluctuation in April recorded -0.1 percentage points. Compared to the US (3.4 percentage points), Germany (2.1 percentage points), Spain (1.9 percentage points), and Japan (1.4 percentage points), food prices in South Korea actually showed a downward trend.

A Bank of Korea official explained, "In major advanced countries where full lockdowns were implemented, disruptions in the production of food and daily necessities, along with demand to stockpile these items, acted as factors limiting the slowdown of inflation rates. In contrast, in South Korea, with minimal increases in daily necessities prices, government policies such as the expansion of free high school education and reductions in individual consumption tax acted as additional downward factors on inflation."

In fact, South Korea's lockdown level was measured at -7, much weaker compared to the US (-29), Germany (-37), and Spain (-50). Because there were no lockdown measures, the supply of various daily necessities was maintained at existing levels, and there was no panic buying, resulting in less inflation.

So how do consumers perceive inflation after COVID-19? According to survey indicators targeting experts in South Korea, expected inflation over the next year was low at 0.9%. Meanwhile, long-term expected inflation (five years ahead) was 1.8%, indicating an expectation to maintain pre-COVID-19 levels. Many consumers also found it difficult to predict future inflation. When the general public was surveyed about expected inflation, the percentage responding "I don't know" increased to 5.3%, up from 3.6% in January this year.

The Bank of Korea previously forecasted in its economic outlook that the annual consumer price inflation rate for this year would be 0.3%, 0.1 percentage points lower than last year's 0.4%. As inflation hits bottom, some economic experts worry that South Korea might experience deflation?a prolonged economic slump caused by continuous price declines?similar to Japan. However, the Bank of Korea and the government interpret this as "disinflation," not deflation. Consumer demand remains steady, and the recent price declines largely reflect global factors such as the sharp drop in international oil prices.

A Bank of Korea official stated, "Next year, as the impact of falling international oil prices disappears, inflation rates are expected to gradually rise due to economic recovery and reduced effects of welfare policies. However, there remains high uncertainty regarding inflation paths related to the progression of COVID-19 and trends in international oil prices."

This content was produced with the assistance of AI translation services.