South Korea's inflation plunged to an all-time low in August and the country's economy expanded at a slower-than-expected clip in the second quarter, data released Tuesday showed, adding to the pressure on the central bank to cut its key rate.
Weaker inflation and lackluster economic growth are fanning worries about the risk of deflation in Asia's fourth-largest economy, but both the government and the Bank of Korea (BOK) played down the danger of a fall in prices.
Consumer prices remained unchanged at 0.0 percent growth in August from a year earlier, staying below the 1 percent threshold for the eighth consecutive month, according to the data from Statistics Korea.
The reading was the lowest since 1965, when the statistics agency started compiling data on consumer prices.
Separately, the BOK said the Korean economy expanded 1 percent in the April-June period, rebounding from an unexpected 0.4 percent on-quarter contraction the previous quarter.
The latest reading, however, marks a slight downward revision from a July estimate of a 1.1 percent on-quarter expansion.
After the inflation and economic growth data were released, Vice Finance Minister Kim Yong-beom said, "Korea is not in a situation of deflation yet because weak inflation is mainly coming from the supply side."
However, Kim warned that Korea's economic growth momentum could be further slowed if the weak inflation continues.
Last week, the BOK left its policy rate unchanged at 1.5 percent as it needs to gauge the impact of its latest cut in July, but hinted at slashing the rate later this year, as two BOK board members cast dissenting votes in the rate-freeze decision.
The decision came after July's quarter percentage-point cut -- the first reduction in three years.
The BOK is expected to cut the rate after the July reduction takes full effect on the economy, analysts said.
The same month, the BOK cut its annual growth outlook for the Korea economy to 2.2 percent for this year from the 2.5 percent forecast three months earlier citing a shaper than expected dip in the country's outbound shipment amid a yearlong trade dispute between the United States and China, the country's top two trade partners.
Lee Mi-sun, a researcher at Hana Financial Investment, said the Korean economy may fail to meet the 2.2 percent growth target this year because of the tepid second-quarter growth data.
"Markets will view weaker inflation and economic growth data as factors that increase the possibility of a rate cut," Lee said.
Earlier, the country's top economic policymaker, Hong Nam-ki, also said it won't be easy to attain this year's growth target of between 2.4 percent and 2.5 percent.
The BOK explained that exports, which account for nearly half of South Korea's economy, went down 0.3 percentage point. Government spending rose 0.3 percentage point lower than the July estimate.
From a year earlier, the Korean economy grew 2 percent in the second quarter.
In the April-June period, facility investment rose 0.8 percentage point higher than the July estimate and private consumption grew 0.7 percentage point higher than the July estimate.
South Korea's export-reliant economy is grappling with slowing exports and sluggish domestic consumption.
Exports dropped 13.6 percent in August from a year earlier, extending their on-year decline to a ninth consecutive month, amid the lengthy trade war between Washington and Beijing. A brewing trade dispute with Japan is also likely to weigh on the Korean economy.
Outbound shipments came to US$44.2 billion last month, compared with the $51 billion tallied a year earlier, according to the government data. Imports fell 4.2 percent on-year last month to $42.4 billion, the ministry added.
"Global conditions are slowing and the external pressures on South Korea have increased," Moody's Analytics said in its weekly report.
"The protracted trade dispute between the U.S. and China shows little sign of abating and may intensify, even as President Donald Trump's comments oscillate in signaling intent for a trade deal." (Yonhap News)