S.Korea's headline inflation falls to 16-year low

South Korea's headline inflation fell to the lowest in about 16 years in February on the back of lower crude oil prices, a government report showed Tuesday.

Consumer prices rose 0.5 percent in February from a year earlier, according to Statistics Korea. It was the lowest increase since July 1999 when it record 0.7 percent rise. The consumer price inflation stayed below 1 percent for three months in a row.

After posting 0.9 percent in October 2013, the consumer price inflation remained above 1 percent for 13 straight months before falling again below the 1 percent level in December and January.

The low headline inflation came as cheaper crude oil pulled down oil products prices. Gasoline and diesel prices tumbled 23.5 percent and 24.7 percent each last month.

Despite the low headline inflation, possibilities remained low for the South Korean economy to fall into deflation as the figure, excluding volatile factors, stayed high, indicating high demand- side inflationary pressures.

Some market watchers said the economy may face deflation or stagnant growth and negative headline inflation if economic indicators continued to worsen.

Core consumer prices, which exclude volatile agricultural and oil products, gained 2.3 percent in February from a year earlier, keeping a 2 percent increase for the second consecutive month.

The OECD-type core consumer prices, excluding volatile energy and food, increased 2.3 percent last month on a yearly basis. The reading moved at the 1 percent level from September to December in 2014.

The so-called livelihood prices, which reflect costs of key daily necessities, slid 0.7 percent in February from a year earlier.

Prices for agricultural livestock and fishery products, rose 1. 1 percent on-year in February, maintaining an upward trend for three straight months.

Pork prices advanced 9.2 percent last month, with those for chives, lettuce and white radish jumping 53.5 percent, 34.7 percent and 19.5 percent respectively. But, prices for onion, permission and rice declined 28.9 percent, 22.1 percent and 2.7 percent each.

Industrial goods prices, which helped drag down headline inflation, retreated 0.8 percent in February from a year earlier on lower crude oil prices.

A surge in tobacco prices limited further fall in headline inflation. The government raised average tobacco prices by a whopping 80 percent from the start of this year.

Prices for electricity, tap water and gas dipped 2.5 percent in February on a yearly basis as lower costs for heating and city gas offset higher water utility bills.

Service prices, which represent demand-side inflationary pressures along with the industrial goods, advanced 1.5 percent in February.

Public services prices rose 0.5 percent for higher sanatorium charges and sewerage service prices. Private services prices climbed 1.8 percent on high tuition fees in private education institutes for middle and high school students.

The so-called "Jeonse" prices jumped 1.8 percent in February from a year ago. Jeonse is the country's unique type of housing lease, where a tenant pays a certain lump sum of deposit instead of paying monthly home rent.

A landlord can be paid the monthly rent by putting the deposit in bank accounts. Caused by lower interest rates, landlords are getting in favor of monthly home rents, boosting Jeonse prices.

The Bank of Korea (BOK) lowered its benchmark interest rate in August and October last year to a record low of 2 percent.