BOK says oil prices stunting inflation, dismisses deflation concerns

[SEOUL] Inflation in South Korea would have been as much as 1.3 percentage points above current levels if not for low global oil prices, the nation's central bank said on Thursday as it rebuffed concerns the economy may slip into deflation.

Cheap global oil prices lowered inflation by an average 1.1 to 1.3 percentage points every month this year as gasoline and diesel prices at home slid, the Bank of Korea (BOK) said in a report on monetary policy.

The bank, however, did not provide any forecasts on the impact of oil prices on inflation in the months ahead.

Inflation in Asia's fourth-largest economy has eased below 1.0 per cent since December last year. A recent survey by Reuters showed April inflation set for release on Friday at 0.4 per cent, steady from the previous month.

A senior central bank official said in an embargoed press briefing accompanying the report that the effects on inflation from oil would likely dissipate during the second half of this year, as oil prices have started to firm and stabilise.

Yoon Myun-shik, a deputy governor at the BOK, also brushed aside deflation concerns: "I think current worries over deflation are overdone." "It's unlikely that inflation as well as growth will be as high as it was before due to structural changes. However, it is also not desirable to stoke fears over deflation or view our economy in a pessimistic light." The Bank of Korea's report added that secondary effects of low global oil prices, generally reflected in inflation expectations, have so far been scant.

The same report also noted that low oil prices would boost purchasing power in oil importing countries, eventually leading to the gradually recovery in South Korea's exports.

REUTERS