SEOUL • South Korea's consumer prices fell for the first time last month, underscoring the hit to domestic demand as the economy grapples with falling exports.

Prices dropped 0.4 per cent from a year earlier, according to the country's statistical office yesterday. Inflation was flat in August and economists surveyed by Bloomberg had forecast a 0.3 per cent fall for last month.

South Korea's economy is expected to grow this year at its slowest pace since the global financial crisis, as the US-China trade war and a slowdown in the Chinese economy hurt overseas demand for South Korean goods.

Bank of Korea governor Lee Ju-yeol last week said downside risks are making it hard for the central bank to maintain its 2.2 per cent growth projection for this year. Economists surveyed by Bloomberg forecast a 1.95 per cent economic expansion.

Negative inflation is likely to add fuel to a growing debate on whether the risk of deflation is imminent in South Korea and what policy action needs to be taken.

Mr Lee last week dismissed concerns of deflation as "excessive". Still, the latest indicator adds to pressure on the central bank to cut interest rates as the economy muddles through an array of downside risks.

Consumer prices have stayed well below the central bank's target of 2 per cent this year, and inflation expectations among households have also been on a downward track.

BLOOMBERG