South Korea inflation eases but underlying pressures persist

By Jihoon Lee and Choonsik Yoo

SEOUL (Reuters) – South Korea’s essential inflation fee slowed in August for the primary time in seven months and got here in under forecasts, however particulars of the value knowledge launched on Friday strengthened views inflation would keep elevated for some time.

The Statistics Korea knowledge confirmed the buyer value index (CPI) rose 5.7% in August from the identical month a 12 months in the past after a 6.3% acquire in July, a 24-year excessive. It was additionally slower than the median 6.1% rise tipped in a Reuters ballot.

The softening in annual inflation was principally attributable to a plunge in international crude costs as the information confirmed costs of oil merchandise tumbling 10.0% in August from July. The weaker oil costs knocked 0.57 proportion factors off the month-on-month inflation fee, leading to a 0.1% retreat in headline CPI, the primary decline since November 2020.

“The info will assist ease issues a few ‘large step’ fee enhance however excessive core inflation and different figures present inflation strain didn’t weaken a lot and won’t accomplish that rapidly,” mentioned Paik Yoon-min, a fixed-income analyst at Kyobo Securities.

Rhee Chang-yong, governor of the Financial institution of Korea, has mentioned his financial institution would strive to not increase rates of interest by a much bigger margin than the standard 25 foundation factors when it must tighten financial coverage once more.

Lee Hwan-seok, a deputy governor of the central financial institution, mentioned at a gathering on Friday that the autumn within the inflation fee was in step with the central financial institution’s expectations and that inflation would keep excessive at 5-6% ranges for a while.

The identical knowledge confirmed annual core inflation, which excludes unstable meals and vitality costs, accelerated to 4.0% in August from 3.9% in July, the quickest since February 2009. Core inflation has not slowed since November final 12 months.

A sub-index measuring service costs – one other indicator of underlying inflation strain – rose 4.1% in August from a 12 months earlier, up from a 4.0% acquire in July and the quickest since November 2008. It confirmed inflation was nonetheless spreading wider.

Rhee has mentioned inflation would keep elevated for the time-being and that his financial institution would maintain elevating the coverage rate of interest having lifted it by a mixed 200 foundation factors from record-low 0.5% since August final 12 months.

(Enhancing by Stephen Coates and Sam Holmes)