Roundup: S. Korea's inflation hits 16-year low amid deflation concerns

Consumer price inflation in South Korea hit the lowest in about 16 years, bolstering the already- triggered worries that the economy may fall into a prolonged deflation, a government report showed on Wednesday.

Consumer prices rose 0.4 percent in March from a year earlier, keeping a zero-percent increase for four months in a row, according to Statistics Korea. It was the lowest since July 1999 when consumer prices gained 0.3 percent.

The consumer price inflation posted 0.8 percent in December, 0. 8 percent in January and 0.5 percent in February before recording 0.4 percent in March.

Excluding the effect from a tobacco price hike, the consumer price inflation logged a negative figure for the two straight months. The tobacco price hike has an effect of raising consumer prices by 0.58 percentage points.

Concerns grew among some experts over the economy facing an initial phase of deflation given the zero-percent consumer price inflation and economic slowdown.

The country's industrial output advanced 2.5 percent on-month in February after sliding 2 percent in January, but the February rebound was attributed to temporary factors, including the Lunar New Year's holiday effect, the low base effect and rising inventory among manufacturers.

Bank of Korea (BOK), the country's central bank, lowered its benchmark interest rate by 25 basis points in March to an all-time low of 1.75 percent on concerns over lackluster domestic demand.

The government, however, said the economy has yet to slip into deflation as the low headline inflation came mainly from supply- side factors such as low oil prices and the core inflation stayed relatively high.

Core consumer prices, which exclude volatile agricultural and oil products, increased 2.1 percent in March from a year earlier, keeping a 2-percent rise for the third consecutive month.

The OECD-method core inflation, which excludes food and energy prices, gained 2.3 percent in March on a yearly basis.

Prices for agricultural, livestock and fishery products fell 0. 8 percent in March from a year earlier, the first decline in four months.

Industrial goods prices, which helped drag down the headline inflation, slipped 0.8 percent in March on lower oil prices. Gasoline and diesel prices plunged 19.7 percent and 21.5 percent each.

Prices for electricity, tap water and gas dipped 6 percent in March on a yearly basis due to a 14 percent decline in city gas prices.

Service prices, which represent demand-side inflationary pressure along with the industrial goods, advanced 1.6 percent in March.

Public service prices inched up 0.6 percent for higher outpatient medical costs and sewerage service fees. Private services prices climbed 1.9 percent on higher food prices in company cafeteria and higher tuition fees in private educational institutes for middle school students. Endi