South Korea Jan inflation steady on cigarette hike, eases deflation concerns

[SEOUL] South Korea's annual inflation held steady in January as a sharp increase in cigarette prices offset a plunge in energy costs, and importantly a rise in core inflation helped to alleviate the immediate risk of deflation.

The consumer price index rose 0.8 per cent in January from a year earlier, Statistics Korea data showed on Tuesday, unchanged from December but just below a median 0.9 per cent rise tipped in a Reuters survey.

Cigarette prices rose by nearly 80 per cent on average after the government levied higher taxes from Jan 1, which alone pushed the consumer price index by about 0.6 per cent and offset downward pressure on prices exerted by the plunge in global energy prices.

Despite the effects of weaker energy costs on consumer prices, a finance ministry official said inflation pressure would gradually increase as Asia's fourth-largest economy steadily picks up momentum this year. "Price pressures are expected to rise as production and household spending improve while low global oil prices will also contribute to boosting public consumption," said a finance ministry official. "Deflation fears are overdone. Even if you take away cigarette prices, core inflation maintained its rise in January." Most economists are also of the view that deflation risks are minimal, but say the central bank would need to cut rates further to forestall the threat of sharper disinflation.

The central bank's inflation target currently stands at a range of 2.5 per cent to 3.5 per cent, but annual inflation has stayed below this range since June 2012, sparking concerns the economy may tip into deflation.

Annual core inflation, which strips out volatile agricultural and oil products' prices, rose to 2.4 per cent from 1.6 per cent in December, also picking up rapidly on cigarette price hikes that were enforced at the start of the year.

Cigarette prices, which have a weighting of 0.77 per cent on the consumer price index, rose 77.3 per cent.

Month-on-month, the consumer price index in January edged up 0.5 per cent, compared with a median 0.4 per cent rise tipped in the Reuters survey.

REUTERS