S. Korea’s consumer price index to fall 0.4 percent in September

The consumer price index (CPI) of South Korea fell 0.4 percent in September compared to the same month of last year. This is the first time that South Korea’s consumer price growth recorded negative rates since the data collection began in 1965. The index slid 0.04 percent in August but it was officially recorded as 0.0 percent since the official figure is rounded off to one decimal place. This means the index growth dropped below zero for two months in a row.

The Bank of Korea aims to keep CPI inflation at 2 percent. The CPI needs to stay around at least 2 percent level in order for production and consumption to be boosted and jobs to be created through investment. Weak inflation leads to weak production, investment, and consumption, possibly pushing the economy into long-term deflation as Japan experienced. The South Korean government said the fall in consumer prices was due to an exceptionally high CPI of last September and recent falls in the price of farm products and oil, downplaying the concern about deflation.

It would be a relief if the CPI and the economy pick up at the end of this year as the government has predicted. But many economists think differently. The Korea Development Institute viewed that for the CPI to continue to hover below the 2 percent mark could be a long-term phase caused by weak demand instead of a temporary trend. A prolonged period of weak demand and production is called deflation.

To make matters worse, South Korea’s exports has been falling for the 10th consecutive month. Academics participating in economic forums are warning about a possible financial crisis resulting from continued weak export coupled with an unprecedented level of household debt as well as long-term stagnation. “Our economy is caught up in the ideological conflict between the conservatives and the liberals,” said Sohn Kyung-shik, chairman of the Korea Enterprises Federation. “If we don’t do everything in our power to strengthen our national competitiveness, we could follow in the footsteps of Japan, which experienced 20 years of long-term economic stagnation.” His views are echoed by businesses.

To be sure, negative consumer price growth might not lead to deflation and weak exports will not immediately bring about economic crisis. But it is the government’s job to check all the possibilities and prevent problems in advance in order to avoid a systemic crisis. Unfortunately, no one in the government, including the president, deputy prime minister, and presidential chief of staff for policy seems to have a sense of crisis and consider effective countermeasures. The economic conditions in and outside the country are so tough that it is not easy to overcome the difficulties even with all our energy. The government should more than anything else put all of its efforts in boosting the economy.