Korea’s producer prices grew at their slowest pace in 31 months in June, in the latest sign that prices are starting to stabilise domestically.
The Bank of Korea said Monday that producer prices edged up POINT-EIGHT percent in June from the previous year, slowing from a near two percent gain in May.
The ongoing global economic downturn and a drop in both oil and vegetable costs were the main factors behind the slower price gain.
Vegetable prices fell 12 percent last month from May, while Dubai crude prices also dropped 12 percent to around 94 US dollars per barrel.
But a fall in oil prices may not be all good news.
According to the central bank, a ten percent drop in oil prices from last March, when the prices were at their peak, will lead to a quarter percentage point decline in inflation by next March.
However, at the same time, lower oil prices will also slow the nation’s economic growth by two tenths of a percentage point, as falling oil prices usually mean there is less demand for oil due to the global economic slowdown.
[Interview : Kang Joong-koo, Economist
LG Economic Research Institute] “Usually, price stabilisation is a good sign because it encourages consumer spending. But now, because prices are falling amid an economic slowdown, it will not influence spending power, and thus the current price drop may be a reflection of the sluggish domestic economic conditions.”
The latest data on producer prices comes just days before the central bank makes its decision on the nation’s key interest rate.
[Reporter : Hwang Sung-hee
firstname.lastname@example.org] “With central banks in Europe and China slashing their borrowing costs last week, some say the drop in producer price growth adds more room for a possible rate cut.
However, the general consensus is that the Bank of Korea will most likely leave the rate unchanged at three-and-a-quarter percent for the 13th straight month in July.
Hwang Sung-hee, Arirang News.”