The monetary authorities and a state-run research institute of Korea presented opposite predictions as to the possibility of deflation following a long period of low consumer prices.
On December 18, the Bank of Korea said that the current concerns over deflation are groundless. “If past experience is any guide, the inflation rate converges to the underlying inflation rate,” central bank governor Kim Choong-soo explained during the day’s discussion session held at the main office, continuing, “Considering the nominal wage increase rate and real labor productivity, it is improper to be worried about deflation with expected inflation at 2.9%, and I think that the underlying inflation rate is over 2.0% as of now when policy effects are excluded.”
He went on to say, “Still, the inflation rate has been pretty low during the past 14 months, and it is true that the movement has been short of our target percentage, which means we are seeking what to do next year as the monetary authorities.” The Bank of Korea’s inflation target is between 2.5% and 3.5%, whereas the actual inflation rate until November this year rose just 1.2% from a year earlier.
In the meantime, the Korea Development Institute (KDI) suggested a possibility of deflation in its report published on the same date. “It seems that the inflation rate will show no significant upward trend next year, meaning there is some possibility of deflation,” the report read.