By Lee Kyung-min
Consumer prices fell in May due mostly to a plunge in oil prices and increased government welfare spending, while prices of groceries rose sharply as shopping habits were affected by the COVID-19 pandemic, data showed Tuesday.
Statistics Korea said consumer prices fell 0.3 percent in May from a year earlier, the second year-on-year drop following September 2019. The price increase rate falling below zero fans fears of deflation ― an overall decline in the general prices of goods and services ― but the government maintains the cause of the price drop stems from supply-side factors and is not demand-oriented. It added that no conclusive inference should be drawn from the May figure alone.
The price drop was most pronounced in refined oil products which saw a combined 18.7 percent drop, pushing down the May average by 0.82 percentage points.
Chief among them was diesel which saw a price drop of 23 percent, followed by gasoline (17.2 percent) and liquefied petroleum gas (14.4 percent). Prices of oil-based industrial goods reported a 2 percent decline.
A 1.9 percent drop in public spending year-on-year led to a 0.27 percentage point decline of the May average. Education spending slid 2.8 percent, led by lowered mandatory dues and fees on expanded public education programs including free lunches for secondary school students. The 2.8 percent year-on-year drop was the sharpest since January 1986 when the statistics agency began compiling related data.
By contrast, highlighted by a double-digit increase was the average pork price which rose 12.2 percent from a year earlier, the highest since February 2015.
The price of beef also jumped 6.6 percent from a year earlier. With vegetables thrown in, the price of agricultural produce and fisheries reported a 3.1 percent increase from the year before.
"The supply of meat had no major external shocks, so the price increase is explained mostly by an increase in demand as many people cooked at home instead of eating out amid the virus pandemic," a statistics agency official said.
The changes in consumer prices in the months to come will be the key variable in determining the pace of the much-needed economic recovery stunted severely by the pandemic, according to Yonsei University economist Sung Tae-yoon.
"The fall in consumer prices in May was driven mostly by tumbling oil prices but the supply-side risk coupled with the virus-related demand shock could be amplified, putting more strain on the economy," he said.
First Vice Minister of Economy and Finance Kim Yong-beom acknowledged that low inflation has emerged as a major concern for economies around the world, exacerbated by weakening consumption due to lockdowns and the overall suspension of economic activities.
"The government will mobilize its utmost efforts to prevent the occurrence of a vicious cycle defined by economic growth slowed due to delayed consumption and investment following unfounded concerns of a further price drop amid already heightened uncertainty," he said.