As inflation expectations in South Korea drop, experts are debating whether Asia's fourth-largest economy risks Japan-style inflation.
"The economy is very much nearing Japan-style deflation insome aspects. It's not an unreasonable situation for Korea with export growth falling and weak domestic spending," said Tim Condon, head of Asia research at ING.
Consumer inflation expectations for the next twelve months fell to their lowest level since the Bank of Korea (BOK) began keeping track in 2002, a survey released this week showed.
Finance minister and Deputy Prime Minister Choi Kyung-hwan has repeatedly compared the economy to Japan's during the early 1990s – the early stages of its 20-year deflation period.
Similarities include a significant decrease in long-term inflation and growth. Consumer price inflation (CPI) remained in the 1 percent range for 22 consecutive months, well below the central bank's 2.5-3.5 percent target band. Meanwhile, President Park Geun-hye warned on Wednesday that the country risks a long-term slump with 2014 growth seen at 3.5 percent, below the central bank's projections for 3.8 percent.