Korean Economy News
Korea's Aug producer prices -0.6% on yr, flags negative inflation down the road

Kim Yeon-joo and Cho Jeehyun

South Korea's producer prices in August fell for the second consecutive month against previous year, raising a further alarm for monetary authorities against unprecedented deflationary risk after consumer prices last month touched sub-zero territory for the first time.

The Bank of Korea said Tuesday the producer price index for August came to 103.73, gaining 0.2 percent from the previous month but retreating 0.6 percent against the same month last year. It is the second month in a row for the index to decline compared to the previous year.

The on-year fall in supply prices was largely due to stabilized farm produce prices under much favorable weather conditions this year compared to last summer when a prolonged heat wave damaged crop production, said the central bank.

Also, weaker international oil prices brought down the costs for producers, the bank explained. The price of Dubai crude, the country's benchmark that makes up nearly 85 percent of total oil imports, averaged $59.13 per barrel in August, compared with $72.49 on the same month last year.

The fall in producer prices will likely lead to further weakening in consumer prices in September as a change in the production prices of goods and services tends to be reflected in consumer prices later. Consumer prices in August slipped 0.04 percent on year to mark the country's first-ever experience with negative inflation.

In August, agricultural, livestock and fishery product prices dropped 8.7 percent compared to the same month last year. Prices of white radish plunged 66.1 percent, napa cabbage 53.8 percent, and spinach 45.9 percent.

Coal and petroleum product prices declined 9.5 percent from a year ago period amid softening in global oil prices. Naphtha prices dropped 22.7 percent, gasoline 10.6 percent and diesel 6.2 percent.

But against the previous month, prices of domestic air flight services rose 9.3 percent and accommodation 14.8 percent due to a hike in demand for summer vacation.

DRAM chip prices also rebounded 2.5 percent on month, snapping its losing streak of the last 13 straight months on stagnant global demand.

Meanwhile, domestic supplier prices index, which includes prices of imported goods, fell 0.2 percent on year. Total output price index, which includes exports, was down 1.2 percent.

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