S.Korea's inflation falls to lowest in nine months

South Korea's headline inflation fell to the lowest in nine months on the back of lower oil prices and the weak demand-side inflationary pressure caused by sluggish economic recovery, a government report showed Tuesday.

Consumer prices rose 1 percent in November from a year earlier, according to Statistics Korea. It was the lowest since February when the headline inflation posted an identical figure of 1 percent.

After advancing to 1.7 percent in June, the consumer price inflation continued to fall to 1.4 percent in August and 1.2 percent in October.

The inflation stayed far below the Bank of Korea (BOK)'s inflation target band of 2.5-3.5 percent, boosting fears over deflation.

From a month earlier, the consumer prices slid 0.2 percent, keeping a downward trend for three months in a row.

Core consumer prices, which exclude volatile farm goods and oil products, rose 1.6 percent in November from a year earlier, marking the lowest in 15 months.

Falling crude oil prices and lower farm goods prices dragged down the headline inflation, while the 15-month low in core inflation reflected weak demand-side inflationary pressures caused by sluggish economic recovery.

The OECD-method core consumer prices, which exclude food and energy prices, gained 1.3 percent in November from a year earlier, marking the lowest since August last year.

The so-called livelihood prices, which reflect costs of key daily necessities, edged up 0.7 percent in November on a year basis, staying below the 1 percent level for four months in a row.

Fresh food prices, which gauge prices of fruit and vegetable, sank 5.2 percent in November, keeping a negative figure for 15 straight months. Fruit prices plunged 11.4 percent, with those for fresh vegetables sliding 5.7 percent.

Prices for agricultural, livestock and fishery products slid 0. 1 percent on-year in November, keeping a downward trend for the 15th consecutive month. Pork and beef prices climbed 15.3 percent and 7.5 percent each, but those for onion, apple and green onion tumbled 35.5 percent, 9.3 percent and 20.7 percent respectively.

Industrial goods prices, which helped pull down last month's headline inflation, gained 0.1 percent in November from a year ago. Gasoline and diesel prices plunged 7.5 percent and 8.9 percent each amid lower global oil prices.

The finance ministry said the global crude prices are expected to stay at a low level on sufficient supply of oil, but it forecast that farm goods prices may rise during the winter season when bad weather can reduce supply.

The planned hike in tobacco prices are expected to boost the headline inflation. Rival political parties agreed last week to raise the average tobacco prices by 80 percent from next year. " The tobacco price hike will add 0.72 percentage points to the consumer price inflation in 2015. Excluding this, the inflation would be well below the BOK target," Kwon Young-sun, an economist at Nomura in Hong Kong said in a report, predicting two more cuts in the policy rate from the current record low of 2 percent to 1.5 percent by April 2015.

Utility prices advanced 2.1 percent in November from a year earlier as the government raised public utility costs to contain a surge in debts among public corporations. City gas and water utility costs gained 4.8 percent and 0.6 percent each.

Service prices, which represent demand-side inflationary pressures along with the industrial goods, increased 1.6 percent in November from a year ago. Public services prices gained 0.8 percent on higher charges of outpatient clinic and sewerage, prices of which jumped 1.8 percent and 11.8 percent each.

Private services prices rose 1.8 percent last month on higher tuition fees in private education institutes for high school students. Housing rents advanced 2.2 percent in November from a year earlier.