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Korea's January prices stable, aided by strong won

SEOUL: South Korea's consumer price index rose just 1.6 percent year-on-year in January, amid concerns that the country's strong economic growth could trigger higher inflationary pressure, government data showed on Monday.

The Finance and Economy Ministry and the Bank of Korea attributed the low inflation to declines in oil, petrochemicals and industrial products prices, aided by cuts in tax rates and the won's appreciation against the dollar.

January consumer price inflation was slightly higher than the 1.5 percent year-on-year seen last January, which was the highest in 1999, and the highest since December 1998, when the consumer price index (CPI) rose 4.0 percent year-on-year.

Month on month, the January index rose 0.2 percent. The index, the broadest gauge of inflation, had fallen 0.2 percent in December and 0.1 percent last January, government data showed.

The month's CPI for food and processed foods rose 2.4 percent year-on-year, compared with 4.8 percent growth in January 1999.

The CPI for products excluding foods grew 1.3 percent versus no change a year earlier, the National Statistical Office said.

The Finance Ministry said in a statement consumer prices for agricultural, livestock and fisheries products rose 1.3 percent in January from the previous month. Industrial goods prices fell 0.4 percent on the month.

The producer price index (PPI), a useful indicator on future consumer price trends, rose 2.0 percent year-on-year in January versus a 1.8 percent decline for the same month in 1999.

The PPI fell 0.1 percent from the previous month, mainly due to drops in producer prices for oil and petrochemical products, the Finance Ministry said.

The January PPI for agricultural, livestock and fisheries products rose 2.5 percent month on month while that for industrial goods fell 0.4 percent.

The central bank said price stability was aided by a stronger won against the dollar, which pushed down domestic prices for imported goods, mainly oil products. South Korea imports all its crude oil.

The won finished Monday's morning session at 1,127.0 per dollar, representing about a 1.0 percent gain in its value so far this month.

The Bank of Korea has forecast this year's CPI growth at 3.1 percent versus a 0.8 percent gain in 1999, and has pledged to cap the consumer price inflation below 3.5 percent.

Economists have warned the South Korean economy, now quickly recovering from a 1997 crisis, could face inflationary pressure in line with its stronger-than-expected growth.

The central bank has estimated the country's gross domestic product growth for 1999 at 10.2 percent, following a 5.8 percent decline in 1998, and forecasts 7.2 percent growth this year.-Reuters