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Roundup: S.Korea to rapidly raise minimum wage to boost domestic demand

Xinhua, March 4, 2015 Adjust font size:

South Korea's top economic policymaker on Wednesday stressed the need for a rapid minimum wage hike to boost the sluggish domestic demand. "Domestic demand cannot be survived without an adequate level of wage increase," Finance Minister Choi Kyung-hwan said at a forum held in Seoul, citing the United States and Japan, where leaders made similar claims.

The Park Geun-hye government has raised minimum wages by an annualized rate of around 7 percent, Choi said, noting that it cannot help but lift minimum wages at a rapid pace this year as well.

Household income among those in their 20s and 30s posted a record-low increase in 2014 amid the record-high youth unemployment rate and surging debts.

Monthly average income of two-member households, of which heads are aged 39 or less, edged up 0.7 percent in 2014 from a year earlier, marking the lowest increase since the related data began to be compiled in 2003.

The youth household income jumped 7.4 percent in 2013, rising 2. 9 percent even in 2009 when the economy was hit hard by the global financial crisis.

The household income adjusted for inflation actually declined last year, given the consumer price inflation posting 1.3 percent in 2014.

Last year's record-low increase came as the youth jobless rate hit a record high of 9 percent. In 2014, the number of those employed posted the highest increase in 12 years, but the growth was led by those in their 50s and 60s.

About one fifth of the youths employed last year got an irregular job, of which contract mature in less than a year, boosting worries about job insecurity.

As the noble prize winner Joseph Stiglitz said in his book"The Price of Inequality,"youths in South Korea faced a stark choice: remaining unemployed or receiving a job far below that for which they are qualified.

Caused by higher living costs and lower income, debts among households in their 20s advanced 11.2 percent in 2014. Those in their 30s saw their debts increase 7 percent, but debts for households in their 40s and 50s fell 0.8 percent and 0.6 percent, respectively.

Gaps in income between youth and middle-aged households widened. Income growth among households in their 20s and 30s fell below 1 percent last year, but the figure for those in their 40s increased 2.9 percent. The reading for those aged 60 or older expanded 4.5 percent in 2014.

Concerns that the South Korean economy may fall into deflation escalated as recent economic indicators indicated a stagnant economy amid low headline inflation.

The country's consumer price inflation was 0.5 percent in February from a year earlier, staying below 1 percent for three months in a row. The figure marked the lowest in about 16 years, statistical agency data showed Tuesday.

The government said it was mainly attributable to cheaper crude oil, which pulled down petroleum product prices by 24.3 percent in February from a year ago.

But the consumer price inflation actually posted a negative figure when excluding the effect of tobacco price hike, which raised the headline inflation by 0.58 percentage points last month. The government lifted average cigarette prices by a whopping 80 percent from the start of this year.

Finance Minister Choi said that he"is much worried about deflation woes"caused by the prolonged low headline inflation, but the minister said the South Korean economy has yet to fall into deflation.

Choi stressed the need for closely monitoring the prolongation of low inflation as it may result in the weakening of sentiment among economic agents such as households and companies.

Adding to low inflation, recent economic data, announced on Sunday and Monday, boosted grim prospects of the South Korean economy.

Production in all industries reduced 1.7 percent in January from a month earlier, marking the biggest monthly fall since March 2013. Output in the mining and manufacturing sectors tumbled 3.7 percent, the largest decline since December 2008 when the global financial crisis affected the country.

Retail sales in January reduced 3.1 percent compared with the prior month, and exports, which account for about half of the economy, tumbled 10 percent in January.

The prolonged disinflation tends to delay consumption expenditure on expectations that consumer prices may fall further. It would result in a stagnant economy, especially in the domestic market, possibly leading to deflation, or the vicious circle of consumer price falls and economic slowdown.

Growing concerns about deflation may put more pressure on the Bank of Korea (BOK) to cut interest rates further. The BOK lowered its policy rate in August and October last year to a record low of 2 percent.

South Korea's consumer price inflation stayed below the BOK's mid-term target band of 2.5-3.5 percent for long.

Lee Chan-woo, director-general of Finance Ministry's economic policy bureau, told a press briefing Monday that interest rate cuts are beneficial to growth according to "economics theories," hinting at the need for further cuts in the policy rate.

Lee noted that the rate-setting depends on the BOK, adding that it would be hard for the South Korean economy to enter into deflation yet. Endi