South Korean consumer prices last month failed to rise despite government cash handouts to spur spending, another sign of how hard the COVID-19 pandemic has hit the economy.
Consumer prices were unchanged from a year earlier, data released yesterday by the government statistics office showed. Economists had expected a 0.2 percent decline.
Any boost to consumer sentiment from the government’s aid to households might have been muted by the emergence last month of new virus clusters that have made people cautious about venturing out. Still, the stimulus likely helped South Korea avoid a second consecutive month of negative core inflation.
“Fiscal policy lent support,” Standard Chartered Bank Korea economist Park Chong-hoon said. “That doesn’t mean the economy is back on track, but the cash handouts at least kept deflationary pressures from deepening.”
South Korea has struggled with low inflation for several years, but managed to avoid any prolonged spell of falling prices.
That could change if the pandemic drags on as the boost from the government’s cash aid to households weakens. The handouts expire at the end of next month.
The data might put pressure on the Bank of Korea (BOK) to do more.
BOK Governor Lee Ju-yeol last month said that he expects consumer prices to stay at about 0 percent for the time being.
For the full year, the central bank forecasts inflation slowing to 0.3 percent and gross domestic output shrinking 0.2 percent.
The deteriorating job market is likely to weigh on prices. Hundreds of thousands of jobs in the past few months have been shed, especially in retail and other service businesses.
The government has pledged tens of trillions of won to create employment in industries such as technology and renewable energy.
The emergence of new virus clusters might have cast a chill on shoppers. South Korea flattened its infection curve months ago, but dozens of new cases are now being reported daily.
The government is tweaking its social distancing rules to try to stem new waves while keeping the economy open. Rebounds in other major economies as lockdowns ease would support inflation in trade-reliant South Korea.
Consumer prices last month rose 0.2 percent over the previous month. Core inflation rose by 0.6 percent from a year earlier.
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