Consumer Prices Stay in 0% Range for 2nd Year... Rising Concerns Over Deflation

Statistics Korea Announces December and Annual Consumer Price Trends
0% Inflation Rate for Two Consecutive Years, First Since Statistical Compilation Began

[Sejong=Asia Economy Reporters Kim Hyunjung and Joo Sangdon] This year’s consumer price inflation rate remained in the 0% range for the second consecutive year. Two consecutive years of 0% inflation is the first occurrence since related statistics began in 1965. The decline in international oil prices and reduced demand due to social distancing measures influenced the low inflation, raising concerns about whether the economy has entered deflation (economic recession caused by falling prices).

According to the "December and Annual Consumer Price Trends" released by Statistics Korea on the 31st, the annual consumer price index for this year was 105.42 (2015=100), marking only a 0.5% increase compared to the previous year. Following last year’s 0.4%, this is the second consecutive year of 0% range inflation. Annual consumer price inflation has recorded 0% only four times, including 1999 (0.8%) right after the foreign exchange crisis, 2015 (0.7%), and 2019 (0.4%).

By item category, prices of goods rose 0.9% compared to last year due to the increase in agricultural, livestock, and fishery products (6.7%). Prices in the service sector, which was directly hit by COVID-19, rose only 0.3%. Industrial products fell by 0.2%. Within services, personal services increased by 1.2%, the smallest rise in eight years since 2012 (1.1%). Public services fell by 1.9% due to various COVID-19 related supports and the policy of free high school tuition. This is the largest decline since related statistics began in 1985. Rent (monthly and yearly), which counts only cases where lease renewals occurred among sample households, rose 0.2%, reversing last year’s decline (-0.1%). However, considering the sharp rise in real estate-related prices such as monthly rent this year, there are criticisms that the actual inflation may not be properly reflected.

With two consecutive years of 0% inflation, there are evaluations that the economy may have entered a recession due to weak consumption. The "core inflation index excluding agricultural products and petroleum products," which is prepared to identify long-term trends by excluding seasonal factors and temporary shocks, rose only 0.7% compared to a year ago. This is the lowest increase since 1999 (0.3%), when the effects of the foreign exchange crisis continued. Also, the OECD standard core inflation index, the "index excluding food and energy," rose 0.4% compared to a year ago, marking the lowest since 1999 (-0.2%).

Regarding the low inflation trend, Ahn Hyungjun, Economic Trend Review Officer at Statistics Korea, explained, "International oil prices fell, lowering petroleum prices, and the impact of social distancing limited the rise in prices for personal services such as dining out and leisure."

Based on monthly inflation rates, December this year recorded 0.5%, marking three consecutive months of 0% inflation since October. Monthly inflation rates were 0.0% in June, 0.3% in July, 0.7% in August, and 1.0% in September, but dropped to 0.1% in October due to government support for communication fees.

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